Posted on 02/17/2008 4:53:59 PM PST by DeaconBenjamin
Visibly concerned to avoid queues forming outside branches this morning, the chancellor and Ron Sandler, Northern Rock's new executive chairman, insisted it would be "business as usual".
Mr Sandler, who is to be paid £90,000 a month in his new role, insisted branches would open on time, customers would be able to withdraw and deposit money, and the government guarantees to depositors remained in place.
News of an emergency loan to Northern Rock from the Bank of England last September triggered the first run on a British bank in more than a century. The government has been trying since then to find a buyer for the bank that would enable the £25bn in Bank of England loans to be repaid.
Shares in the bank, which closed at 90p on Friday, will be suspended this morning and shareholders can expect virtually no compensation for their equity.
Mr Darling 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.
The government's move stunned shareholders, who were last night considering action. 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".
Mr Darling 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.
Sir Richard, whose group only found out about the government's decision just before it was announced, said he was "very disappointed" in the decision and believed he had "a very strong proposal". Virgin had been asked to pay £200m for a government guarantee and £100m-£200m for equity warrants but it is believed that it found this too difficult.
If Northern Rock had been worth £5bn it is understood that the government would only have received £500m in warrants, whereas the Virgin consortium could have made between £1bn and £1.5bn, causing huge embarrassment for the government.
Mr Sandler, who will run the bank at arm's length from the government, said the new strategy for the Northern Rock "will require returning the bank to a more sustainable size".
He refused to be drawn on what that meant for jobs in Newcastle, although one person close to the situation suggested that Northern Rock could be reduced to half of its size with up to 3,000 job losses.
George Osborne, the shadow chancellor, said: "We will not back nationalisation. We will not help Gordon Brown take this country back to the 1970s."
If you listen very closely you can hear some boy crying for his “tuppence”.
Nyah nyah Brits, we already had our first bank run in however many years last August when people thought the bank part of Countrywide would go down with the mortgage part. Big lines, armed guards, the whole works.
BOHICA time for UK taxpayers once again.
While I can understand protecting savers at the bank from the collapse of Northern Rock for the sake of sustaining confidence in the banking system, I fail to see how the government owes anything to the shareholders.
Trading in shares is essentially a gamble, and they lost. Worse, they failed to hold the board accountable for the crisis they found themselves in. With all due respect, I think the shareholders should suck it up.....
Taxpayers' exposure to the beleaguered bank has doubled since the beginning of the year and now stands at about £110 billion - more than the annual budget of the NHS and the equivalent of 27p on the basic rate of income tax.
The newly-installed chairman has been forced to admit that the bank may remain in public hands for "years" - undermining claims by Gordon Brown that the nationalisation was only temporary.
Plans are being drawn up to lay off thousands of bank workers, reduce the savings rates of a million customers and sell branches in an attempt to persuade the European Union to sanction the biggest nationalisation in Britain's history.
As the full scale of taxpayer liabilities became clear it emerged that more than 800,000 people with Northern Rock mortgages are now effectively in debt to the Government. There were growing concerns over the Government's ability to run the bank competitively, with senior City figures claiming that the business would end up being killed off.
David Cameron called on Gordon Brown to dismiss Alistair Darling, the Chancellor, before the end of the week following a series of Treasury crises that have rocked Britain's reputation for economic competence.
The Tory leader's intervention came as:
• Northern Rock's 180,000 shareholders began preparing legal action against the Government amid fears that they will be left with virtually nothing under the nationalisation.
• Fears grew that other banks may be in trouble after the Treasury unveiled plans to allow the Government to take any financial institution into public ownership over the next year in a move described as "draconian".
• The Conservatives pledged to vote against the nationalisation plans in Parliament, claiming that they represented a return to the "dark days of the 1970s".
• Ministers came under pressure to release the advice they received from Goldman Sachs over the future of Northern Rock after it was alleged that critical decisions were delayed in September as Mr Brown dithered over whether to call an election.
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