The fund management arm of Prudential, the FTSE-100 insurance giant, is plotting a £5.5bn swoop on a portfolio of mortgages issued by one of the lenders bailed out during the financial crisis.
Sky News has learnt that M&G is among a pack of bidders which want to buy the loans from UK Asset Resolution (UKAR), the vehicle set up by ministers in 2009 to house the remnants of Bradford & Bingley and Northern Rock.
The auction, which is also attracting interest from bidders such as Blackstone, the American private equity group, is expected to be concluded during the first quarter of next year.
Significantly, the sale proceeds will be used to repay the outstanding £4.7bn of a Treasury loan to the Financial Services Compensation Scheme (FSCS), the interest on which is paid by Britain’s five biggest banks and Nationwide, the building society.
:: Ministers fire starting gun on Bradford & Bingley sale
Almost £11bn of that loan has been repaid.
The return of the remaining sum will mark another milestone in removing the legacies of one of the worst financial crises in British history.
M&G and Blackstone have already been participants in the break-up of the UK’s financial crisis bailouts, buying an £11.8bn portfolio of buy-to-let loans earlier this year.
The Pru-owned investor has yet to team up with another party in the auction but could choose to do so later in the process, according to sources.
Philip Hammond, the Chancellor, said in his Budget last month that further disposals of Royal Bank of Scotland shares would resume within about 18 months.
Morgan Stanley, the Wall Street bank, is handling the sale on behalf of ministers and UKAR.
The majority of the £5.5bn mortgages for sale were issued by B&B, while a smaller tranche relates to assets acquired from GMAC-RFC and Kensington Mortgages.
Sources said the Treasury had recently overcome an obstacle to the auction in the form of new rules imposed by Brussels relating to the inclusion of self-certified mortgages in securitisation vehicles.
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The £20bn used to rescue Lloyds Banking Group has now been returned to taxpayers, generating a modest profit, with tens of billions of pounds coming from the disposal of the customer base of Northern Rock to Virgin Money, and loans made by both it and B&B.
An M&G spokeswoman declined to comment on Thursday.