Citi joins bid for £13bn taxpayer bank assets

Sky News has learnt that Citi has signed up to a consortium led by Goldman Sachs and involving units of Blackstone, TPG  and Och-Ziff, the New York-based hedge fund manager.

The addition of Citi to the bid for a mortgage securitisation vehicle called Granite, which is part of UK Asset Resolution (UKAR), brings another deep-pocketed Wall Street player into an auction ordered by George Osborne, the Chancellor, earlier this year.

It was unclear on Wednesday whether Citi would provide equity as well as debt financing to bolster the consortium’s firepower.

The US bank declined to comment on its involvement.

The sale of Granite, which is expected to move forward in the next few weeks, will form part of a massive privatsiation programme that Mr Osborne believes will eclipse the proceeds raised by Margaret Thatcher’s sell-off of state-owned companies during the 1980s.

Last month, the Treasury announced the sale of just over £2bn of shares in Royal Bank of Scotland (RBS) at a price which crystallised a loss of approximately £1bn for taxpayers.

Mr Osborne has insisted that the overall sum recouped from the sale of taxpayer-owned bank assets is likely to represent a profit, although his argument has been undermined by his exclusion of the costs of financing the multitude of rescues which took place in 2008 and 2009.

Writing to Mr Osborne in March, UK Financial Investments’ executive chairman, James Leigh-Pemberton, said market conditions meant that a sale of the mortgage portfolio could yield an attractive price for the taxpayer.

Previous disposals of assets held by UKAR, including a deal with JP Morgan last year, generated a profit for the Exchequer.

Citi’s involvement in the Wall Street consortium is intriguing because of its role advising the Government in 2007 when Northern Rock was teetering on the brink of collapse.

Sky News revealed in June that Goldman had been appointed to advise UKFI, UKAR’s parent, on its strategy for privatising the taxpayer’s bank stakes even as it attempted to buy the Granite portfolio.

Goldman, which also advised on the nationalisation of Northern Rock, worked with Bradford & Bingley on its attempts to stave off collapse in 2008, and attempted to broker a rescue deal led by TPG – one of the firms that the US bank is now partnering with in an effort to buy the Granite assets.

RBS has itself expressed an interest in buying Granite in what would be its first meaningful acquisition since the financial crisis.

The move would allow the bank to deploy some of the surplus liquidity on its balance sheet, and reflect the bank’s aims of investing primarily in its UK retail and commercial business, to grow its position in mortgages and to utilise surplus funding.

Under the terms of its rescue by the Treasury in 2008 and amended by the European Commission last year, RBS is restricted from making acquisitions where they involve a price above a certain threshold until it completes the sale of hundreds of branches being rebranded as Williams & Glyn.

That disposal is unlikely to be finalised until 2017, although sources close to RBS have said that any attempt to buy parts of Granite would comply with the EU state aid agreement.