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Alastair Darling
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In a formal statement yesterday, the UK Chancellor, Alastair Darling, announced that the government would be nationalising Northern Rock, the UK’s 5th largest mortgage lender and a victim of the liquidity difficulties in the inter-bank lending market following the US’s sub-prime crisis.
The statement, necessary in view of the fact that shares in Northern Rock will be suspended this morning, said that none of the two current offers to buy Northern Rock delivered sufficient value to the UK taxpayers – the ultimate lenders in the government’s £25 billion loan made last year to keep the stricken lender afloat.
Darling said “the Government has therefore today decided to bring forward legislation to take Northern Rock into a period of temporary public ownership. We have done so after full consultation with the Bank of England and the Financial Services Authority. Northern Rock will continue operating as a bank on a commercial basis. It will be open for business as usual tomorrow morning and thereafter.”
The statement gives reasons for the lack of success of the two competing offers plus emphases the intention that the £25B should be recovered in its entirety together with interest before any guarantees be given or private profitability be taken out of a Northern Rock sale. The government sees the current market instability as both temporary and as impacting the price it can get – it therefore believes that a short-term public ownership is the best solution – but with a commitment to an eventual sale. How short is short-term will be a point of future interest – as will be the position of current Northern Rock shareholders.
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