BOE Prepares 50 Billion-Pound Mortgage Plan, BBC Says

BOE Prepares 50 Billion-Pound Mortgage Plan, BBC Says

April 19 (Bloomberg) -- The Bank of England is preparing to announce a plan to swap 50 billion pounds ($99.9 billion) of government bonds for British banks' mortgages, the British Broadcasting Corp. reported.

The plan, to be unveiled next week, involves government bonds with a maturity of up to one year, the BBC said. They would be rolled over for up to three years, it added.

The BBC said the plan would be the biggest special initiative by British monetary authorities to supply liquidity to the U.K. banking system, and would meet banks' demands for ``longer term loans'' while escaping being accounted for in the national debt.

``The chancellor has made very clear that work is under way at the highest levels to ensure that the secondary market returns to functioning normally,'' an official of the U.K. Treasury said, in a reference to Chancellor of the Exchequer Alistair Darling. ``An announcement will be made in due course.''

The Bank of England declined to comment on the BBC report.

The U.K. central bank is working with the Treasury and Prime Minister Gordon Brown's office on a plan to inject liquidity into markets after a worldwide surge in borrowing costs. Lloyds TSB Group Plc, Nationwide Building Society and HBOS Plc have raised the cost of mortgage loans even as the central bank lowered its benchmark lending rate, threatening to curb U.K. economic growth.

Pound Gains

The pound rose to a 10-day high against the euro yesterday, posting the biggest weekly gain in more than a year, after the Wall Street Journal reported the Bank of England would take as much as 30 billion pounds of infected mortgages off lenders' balance sheets to ease the credit crisis.

Britain's currency also climbed versus the dollar and two- year government notes dropped the most in a month. Royal Bank of Scotland Group Plc, the country's second-biggest lender, may sell shares, a person familiar with the matter said, a signal the worst of the liquidity squeeze may be over. Traders pared bets on lower rates, with the yield on the December sterling futures contract this week surging by the most in at least four years.

Market Logjam

Britain's currency rose as much as 1.4 percent to 78.76 pence per euro, the highest level since April 7, and was at 78.83 pence by 4:40 p.m. in London. It advanced 1.9 percent in the week, the most since January 2007.

Former policy maker Richard Lambert said yesterday the Bank of England should be ready to act to ease financial-system strains both within the U.K. mortgage market and in a global move with other central banks.

``They need to be ready to join in concerted international action to ease strains on bank liquidity,'' Lambert, director- general of the Confederation of British Industry, said in a speech in Edinburgh. ``They should be working on ways to help unblock the logjam in wholesale financial markets.''

The Financial Times, citing unidentified people familiar with the matter, reported that Royal Bank of Scotland Group Plc will show about 4 billion pounds ($8 billion) in losses from the credit turmoil next week.

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