Granite and Northern Rock - Who Owns the Mortgages?
No company in its right mind would take over or invest in another without having the books checked first; that is known as due diligence. But to this day there has not been a whisper of any such investigation into Northern Rock following its collapse, although it is inconceivable that none such has taken place. It is therefore safe to conclude that the Granite issue which is now emerging, in particular the fact that it owns £40 billion of the pick of Northern Rock mortgages, must have been known to both Gordon Brown and Alistair Darling from the very beginning of this affair.
Granite Finance Holdings and its variety of subsidiaries are not directly owned by Northern Rock but by a company called the Law Debenture Corporation. Granite itself; its many subsidiaries and Law Debenture are all registered in the tax haven of Jersey. Law Debenture ostensibly acts as a trustee to Granite Finance Holdings.
The £40 billion or so of these mortgages are held by Granite in a discretionary trust, principally to the benefit of ‘Downs Syndrome North East’; a registered charity ref: 1096003. As Paul Murphy points out in the FT on 21st February 2008, the Granite’s beneficial ownership is evidenced by Law Debenture as follows:
‘The entire share capital of Holdings (i.e. Granite) is held on trust…. for the benefit of one or more charities…‘any profits received by Holdings ….will be paid for the benefit of Down’s Syndrome North East Association UK …’
The charity itself seems to be unaware of this largesse though and have issued a statement saying that:
‘We are investigating why our charity appears to have been named as a beneficiary of a trust without our consent’. They go on to say: ‘We have definitely not received any money from Northern Rock or affiliated companies, except for a one off donation from a staff collection in 2001.’
In fact the purpose of this so called trust seems to have been to raise cash for Northern Rock’s business, while avoiding tax. However one views this the questions arise: Does Northern Rock legally own the mortgages held by Granite Financial Holdings and are the devices currently holding them SIVs (structured investment vehicles), SPVs (special purpose vehicles) or something else? On the answers to these could depend whether or not the taxpayer; who after all is into this mess to the tune of £100 billion, will in turn own them come the nationalisation.
There is also the question of how HMRC may view this arrangement, in which its tax free 'charitable' status is denied by the very charity which is named as the benficiary. Is it possible that taxpayers' cash would then have to be used to settle a tax consequent demand?
The fact is however that nobody yet seems to know; nobody that is except for Gordon Brown, Alistair Darling and the consultants, who have chalked up a reported £100 million on this in fees so far and counting - and none of them are saying.
Is there an alternative to nationalisation? The history books show that 140 years ago this country faced exactly the same situation but with the difference being that the then Bank of England dealt with it cleanly and efficiently, while the government of the day wisely kept its distance. The article here on this is titled: Northern Rock 2007: Overend Gurney 1866.
Posted 21st February 2008
Click here to view Paul Murphy article (FT) on Granite Financial Holdings 21st Feb 2008
Click here to view Tax Research UK article on Granite Financial Holdings
Click here to view Guardian article on Granite turmoil for the government 21st Feb 2008
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