UK Asset Resolution Limited Annual Report & Accounts

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UK Asset Resolution Limited Annual Report & Accounts UK Asset Resolution Limited Annual Report & Accounts for the 12 months to 31 March 2021 Registered in England and Wales under company number 07301961 CP 449 July 2021 UK Asset Resolution Limited Annual Report & Accounts for the 12 months to 31 March 2021 Presented to Parliament by the Economic Secretary to the Treasury by Command of Her Majesty July 2021 CP 449 © UK Asset Resolution Limited copyright 2021 The text of this document (this excludes, where present, the Royal Arms and all departmental or agency logos) may be reproduced free of charge in any format or medium provided that it is reproduced accurately and not in a misleading context. The material must be acknowledged as UK Asset Resolution Limited copyright and the document title specified. Where third party material has been identified, permission from the respective copyright holder must be sought. Any enquiries related to this publication should be sent to us at [email protected]. This publication is available at: www.gov.uk/official-documents. ISBN 978-1-5286-2731-3 CCS0521568880 07/21 Printed on paper containing 75% recycled fibre content minimum. Printed in the UK by the APS Group on behalf of the Controller of Her Majesty’s Stationery Office. UK Asset Resolution Limited contacts This document can be found on our website at www.ukar.co.uk. General enquiries should be addressed to: UK Asset Resolution Limited – Registered Office: Croft Road Crossflatts Bingley West Yorkshire BD16 2UA E-mail: [email protected] Company number 07301961 Annual Report & Accounts 2021 UK Asset Resolution Limited Contents Page UKAR Group overview 3 Chair’s statement 5 Chief Executive Officer's introduction 7 Strategic Report Key highlights 10 Company strategy 12 Section 172(1) statement - Shareholder 13 - Customers 13 - Workforce 14 - Pensioners 15 - Regulator 15 - Suppliers 15 - Community 16 Risk overview 17 Directors’ Report and Governance Statement Corporate governance - Governance structure 20 - Board of Directors 21 - How the Board operated in 2020/21 24 Directors’ Remuneration report 30 Audit & Risk Committee Chair's report 44 Nomination Committee Chair's report 48 Transaction Approvals Committee Chair's report 50 Key performance indicators 51 Financial review 54 Risk management and control 60 Corporate social responsibility report 65 Other matters 70 Statement of Directors’ and Accounting Officer's responsibilities 72 Independent Auditor’s Report Independent Auditor’s report - Group 73 Accounts Consolidated Income Statement 79 Consolidated Statement of Comprehensive Income 80 Consolidated Balance Sheet 81 Consolidated Statement of Changes in Equity 82 Consolidated Cash Flow Statement 83 Notes to the Financial Statements 85 Independent Auditor’s report – Company 129 Company Balance Sheet 132 Company Statement of Changes in Equity 133 Company Cash Flow Statement 134 Notes to the Company Financial Statements 135 1 UK Asset Resolution Limited Annual Report & Accounts 2021 2 Annual Report & Accounts 2021 UK Asset Resolution Limited UKAR Group overview About UKAR UK Asset Resolution Limited ('UKAR') is the holding company established on 1 October 2010 to bring together the government- owned businesses of Bradford & Bingley plc ('B&B') and NRAM plc1 with an overarching objective to develop and execute a strategy for disposing of UKAR’s shareholdings in B&B and NRAM in an orderly and active way. B&B was taken into public ownership on 29 September 2008 and funding was provided to the Company by Her Majesty’s Treasury (‘HM Treasury’) and the Financial Services Compensation Scheme. On 25 January 2010 B&B was notified of the European Commission’s approval of state aid. B&B’s principal subsidiary is Mortgage Express (‘MX’), a directly held unlimited company. NRAM plc was taken into public ownership on 22 February 2008. During 2007 and 2008 loan facilities to NRAM plc were put in place by the Bank of England and subsequently novated to HM Treasury on 28 August 2008. On 28 October 2009 the European Commission approved state aid to NRAM plc confirming the facilities provided by HM Treasury, thereby removing the material uncertainty over NRAM plc’s ability to continue as a going concern which previously existed. UKAR is wholly owned by HM Treasury, whose shareholding is managed by UK Government Investments Limited ('UKGI'). The full governance structure is set out in a framework document ('the Framework Document') agreed between UKAR and UKGI, acting on behalf of HM Treasury (see page 20 for details). In 2019 the UKAR Group (‘the Group’) fully repaid the government loans given to B&B and NRAM and in 2020 the repayment of the last of the Group’s third party liabilities enabled HMT to terminate the guarantee arrangements which were put in place when the two businesses came into public ownership. In February 2021, following a competitive process, UKAR agreed to sell the entire issued share capital of B&B and NRAM, along with their remaining loan assets, bringing to a close the government’s intervention in B&B and NRAM, with the taxpayer fully repaid. Subject to the receipt of regulatory approvals, B&B and NRAM are expected to return to the private sector later in the year. To provide context for the financial disclosures within this report, the transaction that was agreed in February 2021 followed a competitive process, as a result of which UKAR agreed to sell B&B and NRAM along with their assets to a consortium comprising Davidson Kempner Capital Management LP (‘Davidson Kempner’) and Citibank (‘Citi’). The price achieved was within expectations. The balances were de-recognised on contract signature and beneficial interest in the loans was transferred to the new owners in March 2021. The loan sale gave rise to an accounting loss of £18.8m which has been recognised in these accounts. See page 57 for further details. The sale was based on the portfolio position as at 31 March 2020 of c.£5.0bn from which point the buyers retrospectively acquired the cashflows from ownership of c.38,000 loans held by B&B, MX and NRAM. B&B, MX and NRAM continued to account for the loans from 1 April 2020 until contract signature but the purchase price was adjusted for the cashflows after 1 April accordingly. Mission and purpose 1 In 2016, NRAM plc was acquired by Cerberus Capital Management LP (‘Cerberus’) and the assets and liabilities not included in the transaction were transferred to a newly established subsidiary of UKAR, which is now known as NRAM Limited. Throughout the Annual Report & Accounts ‘NRAM’ refers to the underlying business. 3 UK Asset Resolution Limited Annual Report & Accounts 2021 UKAR Group overview (continued) Key Facts 31 March 2021 31 March 2020 Number of customers 2 27,200 30,400 Outstanding customer balances 2 - £5.0bn Employees 78 108 2 Whilst B&B and NRAM sold the economic interest in their remaining loan assets in the period, legal title, and thus regulatory responsibility, remains with B&B and NRAM and they will continue to provide oversight of the service that these 27,200 customers receive. 4 Annual Report & Accounts 2021 UK Asset Resolution Limited Chair’s statement As I mentioned in my statement last year, these are unprecedented times, and the worldwide impact of COVID-19 is deeply saddening. Throughout the year we have supported our customers, suppliers and communities to the best of our ability as we worked our way through the constantly changing environment. We have focussed on the wellbeing of our colleagues, all of whom were given the technology to work remotely, and our offices were made COVID-secure, in line with government guidance, for those who needed to attend the workplace. In February 2021 we agreed the sale of B&B and NRAM and their subsidiary companies and the return of all of UKAR’s loan assets to private ownership. This sale will bring to a close the government’s ownership of B&B and NRAM, with the taxpayer fully repaid and the legal and regulatory responsibility for the operating companies returning to the private sector. Throughout the process we worked closely with UKGI and HM Treasury to ensure that the transaction met all the conditions within our value for money framework and that customers were appropriately protected. Subject to the receipt of regulatory approvals, B&B and NRAM are expected to return to the private sector later in the year. Over the year our focus on treating customers fairly continued and we worked with all customers, particularly those facing financial difficulty, to understand their needs and to look at various options to support them. In line with the rest of the industry, B&B and NRAM implemented additional measures to support customers impacted by the pandemic, including offering payment deferrals of up to six months and suspending repossessions. Notwithstanding the sale of the beneficial interest in the outstanding loans, B&B and NRAM remain responsible for the oversight of all aspects of customer outcomes. Since the government’s interventions in 2008, both B&B and NRAM have had access to low, or zero, cost funding, without which their capital base would have been eroded and they would not have made profits. The UK taxpayer has borne the costs of this funding over the past ten years. Having fully repaid the government loans any surplus funds will now be distributed to HM Treasury through dividends and, as confirmed in the Office for Budget Responsibility (“OBR”) financial interventions table included within their Economic and Fiscal Outlook, the taxpayer has therefore substantially recovered all actual and opportunity costs suffered as a result. Further details on our financial and operational performance can be found in the CEO statement and throughout this Annual Report. The Board Our internal review of the performance of the Board confirmed that we continue to work well as a team and in a constructive manner.
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