Britain nationalizes Northern Rock 'temporarily'

From the Financial Times, London
Sunday, February 17, 2008

http://www.ft.com/cms/s/9ba3c422-dd6e-11dc-ad7e-0000779fd2ac.html

Northern Rock, the troubled British bank, is to be nationalised, the UK Treasury announced Sunday.

The decision ends months of efforts to find a private sector rescuer for the stricken mortgage lender, which ran into trouble as a result of the international credit squeeze.

It means that neither of the two bids for the bank, from Sir Richard Branson's Virgin consortium and Northern Rock's own management team, have been successful.

Both bidders tendered revised offers on Friday after the government threatened that the bank would be nationalised unless their proposals were improved.

The government believes nationalisation is now the best option, even though it is likely to spark a political storm, an angry reaction from some shareholders, and big job losses in the northeast of England.

Alistair Darling, chancellor of the exchequer, said that Goldman Sachs, which is advising the government on the bank's future, had concluded that a "period of temporary ownership" better met the interests of taxpayers.

Deposits and savings would "remain safe and secure," he said.

The chancellor confirmed that Ron Sandler, former chief of the Lloyd's of London insurance market, would run the bank.

The government would introduce legislation for the move on Monday. UK listing authorities will suspend the company's shares prior to opening of the London stock market.

Taxpayers are subsidising the bank in loans and guarantees to other lenders totalling L55 billion. Mr Darling said he expected these to be repaid.

"It is our expectation that the company can be moved back into the private sector at the earliest and most opportune opportunity," he said.

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