Brown and Darling face grilling over Rock nationalisation

Source: Exec Digital UK

Date :18/02/2008 09:05:09

Alistair Darling finally put the stricken Northern Rock into public ownership on Sunday, infuriating shareholders and shocking private suitors hoping to take over the mortgage lender.

Ron Sandler, Northern Rock’s new executive chairman, insisted it would be “business as usual”. He insisted branches would open on time, customers would be able to withdraw and deposit money, and the government guarantees to depositors remained in place.

He is to be paid £90,000 a month in his new role.

Emergency loan

The near collapse last year of Northern Rock sparked the UK's first bank run in more than 140 years. The government has been trying since then to find a buyer for the bank that would enable the £25 billion in Bank of England loans to be repaid.

Shares in the bank, which closed at 90 pence on Friday, will be suspended on Monday morning and shareholders can expect virtually no compensation for their equity.

Legislation

The Chancellor said the legislation to be brought to parliament on Monday would appoint independent arbiters to determine what the shares were worth, but the legislation would propose that the government should not be required to compensate shareholders for any value that is dependent on taxpayers’ support.

He said that although he had always preferred a private sector solution, “the numbers did not stack up” in either of two private sector proposals offered – one from Sir Richard Branson’s Virgin Group and another from the bank’s management.

“I have a duty to the taxpayers of this country to make sure that I do the right thing by them and that is what I have done,” he said.

Shareholders

British Prime Minister Gordon Brown was expected to hold a news conference at 6 a.m. EST Monday and Alistair Darling will announce new legislation allowing the government to take over Britain's fifth-largest mortgage lender. Both faced a political and public backlash from irate shareholders who are expected to take action against the decision.

Jon Wood of the SRM hedge fund, the bank’s biggest shareholder, said: “This is a very sad day for the stock market, banking industry and the reputation of the UK as a financial centre.” Noting that the chancellor insisted the bank was solvent, he added: “We will pursue all avenues to protect that value for shareholders.”

Robin Ashby, founder of the Northern Rock small shareholders group, said he was “shocked and appalled” that shareholders “were having the bank stolen away from them”.

The Conservatives also criticised Mr. Darling’s "catastrophic" decision. George Osborne, the shadow chancellor, said: “We will not back nationalisation. We will not help Gordon Brown take this country back to the 1970s.”

February 18, 2008