Britain to Nationalize Northern Rock Bank
Monday, February 18, 2008
LONDON, Feb. 17 -- Treasury chief Alistair Darling said Sunday that struggling bank Northern Rock will be nationalized, after the government rejected two private takeover bids.
Darling told a news conference that the mortgage lender would be placed under temporary public ownership because both bids had failed to meet the government's criteria for protecting taxpayers.
"The new board and the company will operate at arm's length from the government, with complete commercial autonomy for their decisions," Darling said.
He said Prime Minister Gordon Brown had agreed nationalization was the best solution available.
"Under the approach we are taking, the taxpayer will see its outstanding loans to Northern Rock repaid in full, with interest -- and that the business can be returned to the private sector as financial markets stabilize," he said.
He said neither of two private proposals -- from Richard Branson's Virgin Group and an in-house bid from the bank's management team -- "delivered sufficient value for money to the taxpayer."
The government had said more than $49 billion in government loans must be paid back within three years.
Darling said the private proposals involved risks for taxpayers and significant government subsidy. Both also involved bidders paying below the market rate while the government continued to provide guarantees and financing.
Branson criticized the decision.
"We believe nationalization is not the right answer and that a commercial solution would have been the best way forward," Branson said in a statement.
Northern Rock ran into trouble in September because it relied too heavily on short-term money markets instead of deposits for funding. A subsequent profit warning and appeal to the Bank of England for an emergency loan led to the first run on a British bank since 1866.
The government had been in the middle of an auction process to find a buyer for the bank. Darling had a March 17 deadline to choose between the bids and nationalization.