 |
Alistair Darling, chancellor of the
Exchequer, announced on Sunday, February 17, that, "It is our
expectation that the company can be moved into the private sector at
the earliest and most prudent opportunity". |
|
The two private sector bidders did not
meet the requirement which will be met by this nationalization plan.
That is, under the public ownership plan, the government's
outstanding loans to Northern Rock will be repaid in full with
interest. |
|
Northern Rock suffered the first run on
an English bank in over a century, is the first nationalization
since 1984, and the biggest bank nationalization since Clement
Attlee's Labor government took the Bank of England into public
control in 1946. |
|
The bank's balance sheet already has
been added to England's public finances. This boosted Britain's debt
burden above 40% of GDP for the first time since the Labor
government took office in 1997. It is a difficult setback for
Prime Minister Gordon Brown. |
|
The British government
rejected two takeover proposals for the mortgage lender. The
British public will be liable for about £55 billion, or $108
billion, in loans and guarantees. |
|
Alistair Darling, chancellor
of the Exchequer, added, "The government has completed its
review of the two detailed proposals received... But in
current market conditions, we do not believe that they
deliver sufficient value for money for the taxpayer. The
government has therefore decided to bring forward
legislation to take Northern Rock into a period of temporary
public ownership." |
|
He continued, "It is our
expectation that the company can be moved into the private
sector at the earliest and most prudent opportunity".
However, he would not give an estimate of how long he
expected nationalization to last. |
|
Brown and Darling had said
that nationalization was the least favored option for the
bank. |
|
Darling confirmed that under
this public ownership plan, the government's outstanding
loans to Northern Rock will be repaid in full with interest.
He added that private sector alternatives that were
available did not meet this test. |
|
Northern Rock said via its
Internet site that its customers will not be affected by the
government takeover. Their savings are safe and secure and
protected by the government's guarantee arrangements. All
branches, call centers and operations will be open for
business as usual tomorrow, Monday. |
|
Darling said if the
government had "let this bank fail there would be a chance
that the problems would have spread into the wider British
banking system". Some shareholders had argued against
nationalization because the government is unlikely to invest
further funds in Northern Rock to pay for any expansion of
the business and may scale down its operations. |
|
A former chief executive of
Lloyds of London insurance market, Ron Sandler, will take
over as executive chairman Northern Rock. He has served as a
National Westminster Bank executive and has advised the
Treasury on pensions. He will manage the bank's assets (113
billion pounds) and 6,500 employees. |
|
Darling said he will
introduce legislation Monday to put Northern Rock under
government control and that the bank will be operated "at
arm's length and on a commercial basis". |
|
|