Problem loans are brought under one company

UK Financial Investments (UKFI), which oversees State banking assets, yesterday confirmed the long-anticipated merger of B&B's 39bn

mortgage book with Northern Rock Asset Management's 54bn portfolio of troublesome loans.

The loan books will be brought under one holding company with a single management team.

UKFI stressed the merger would "maximise value for the taxpayer" but declined to say whether the organisation will be headquartered at B&B's Crossflatts home, or in Newcastle with Northern Rock.

Northern Rock employs around 4,500 across both parts of the bank, while B&B has nearly 1,000 staff.

The merger is also expected to help save costs on suppliers and IT systems.

"It's very early days. I do not think large scale shifts of people are really on the cards," said B&B's commercial director, Andy Wiggans.

"This will be a very big business. I don't think we're talking about job cuts in terms of having less people.

"The one thing I can say is that the intention is that both organisations will retain a presence in their localities – there will be a B&B presence in Yorkshire."

Each will retain its own balance sheet within the new overarching company, but the process will be "extensive" and there is no firm timetable for the merger.

Keith Morgan, head of wholly-owned investments at UKFI, said: "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.

"Northern Rock Asset Management and B&B are now similar companies and operating under this new structure will help deliver efficient management of both companies' closed mortgage books."

Northern Rock was split into two at the start of the year, separated into a "good bank" with about 19bn in savings and 10bn of mortgages, and a "bad bank" – renamed Northern Rock Asset Management – which has been left with the majority of the lender's loan book.

B&B was also split at the time of its rescue in 2008, with the savings business and branch network sold to Abbey owner Santander, and the troubled loan book nationalised.

Richard Pym, chairman at B&B, was also appointed chairman of Northern Rock's bad bank late last year in a move widely seen as a precursor to a merger of the two institutions.

Tom Riordan, chief executive of Yorkshire Forward, said: "We are working actively to ensure that this announcement has a beneficial effect on jobs in Yorkshire."