Merchandising in Northern Rock shares debarred
LONDON, England (CNN) The British government announced Sunday it is moving to nationalize — on a temporary basis — the struggling mortgage lender Northern Rock.
Customers line up to withdraw cash from a Northern Rock branch during the height of the crisis.
The move to nationalize the bank, a politically embarrassing U-turn for Prime Minister Gordon Brown and his government, was announced at a news conference at the Treasury by Chancellor of the Exchequer (Finance Minister) Alastair Darling.
The government had insisted it preferred a commercial solution to nationalization.
Describing the plan as being in the interests of the British taxpayer, Darling said legislation would be put before Parliament Monday to move the bank into state hands.
Darling confirmed that Sir Richard Branson’s Virgin Group and Northern Rock’s own board had prepared commercial bids to buy the bank, but said the government’s advisers at the investment bank Goldman Sachs had concluded “the numbers did not stack up and the better deal was temporary public ownership.”
Both schemes, the chancellor said, would have involved an implicit subsidy from the taxpayer, and this was unacceptable.
Northern Rock, Britain’s fifth-largest mortgage lender, has dogged Brown and his government since last September, when rumors of its financial difficulties led retail depositors to line up to withdraw their money in Britain’s first run on a bank since Victorian times.
Since then, USD 52 000 000 000 — guaranteed by the government with public money — has been pumped into the bank to keep it afloat.
Brown served as finance minister from 1997 before replacing Tony Blair as prime minister last June.
Darling said he believed the current difficult market conditions would improve and he hoped Northern Rock could be taken back into private ownership “at the earliest and most prudent opportunity,” though he would not say when this might be.
Existing shareholders would receive compensation at levels to be decided by an independent arbitrator.
The new executive chairman of Northern Rock is to be Ron Sandler, a veteran of the rescue of the insurance market Lloyd’s of London in the 1990s. He said it would be business as usual at the bank, and there would be no government interference, but hinted at job cuts, saying it had grown rapidly but would need to be returned “to a more sustainable size.”
Northern Rock’s current headcount is about 6,000.
In a posting on its Web site, the bank said customers would not be affected by the change. In bold print, it added, “Your savings with Northern Rock continue to be safe and secure, protected by the government guarantee arrangements.”
contributed to this report.
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