Northern Rock Asset Management and Bradford & Bingley are merging their ‘bad banks’ in a bid to make the management of their closed mortgage books more efficient.
These will be brought into a single holding company to “maximise value for the taxpayer.”
However, each will remain as separate legal entities and will keep their own balance sheet liabilities and government support arrangements.
UK Financial Investments (UKFI), which oversees the government's investments in banks, says the process will be “extensive” but has yet to confirm a definite time scale.
Keith Morgan, head of wholly-owned Investments at UKFI, adds: “We believe that bringing these businesses together under a single holding company with a common management team is the natural outcome and the right solution to maximise value for the taxpayer.”
However, it remains unclear at this stage how much will be saved after the merger. The two companies will share suppliers and IT systems, and job cuts for the thousands of staff currently employed at the two operations could well be on the cards.
But the change will not affect customers who currently hold mortgages with the banks.
Northern Rock was formally split into a 'good bank' and a 'bad bank' on 1 January following its restructuring last year.
The bad bank, named Northern Rock (Asset Management) and chaired by Bradford & Bingley's Richard Pym, has a residential mortgage book of about £50 billion and £4.5 billion of unsecured personal loans.
Last year, Santander took on the savings part of Bradford & Bingley while its troubled mortgage book remained in government hands.