UK Chancellor to set out Northern Rock plan
UK Chancellor Alistair Darling will today set out plans to provide British government backing for a private-sector buyout of the stricken Northern Rock bank.
Under the proposals drawn up by investment bankers Goldman Sachs, the £24bn (€32.2bn) given to the bank in emergency loans by the Bank of England would be converted into bonds to be sold to international investors.
Initial details will be set out in a 7am statement to the British Stock Exchange, followed in the afternoon with a statement by Mr Darling to MPs in the UK House of Commons.
The scheme – understood to have been approved by Prime Minister Gordon Brown - would enable the British government to avoid the political embarrassment of having to take over the bank itself.
But with the bonds to be underwritten by the British government rather than a private sector insurer, the opposition parties said that effectively the bank was being nationalised by the back door.
Under the Goldman Sachs plan, the bonds would be sold off in small parcels over a period of time – which could mean the British government will have to wait years before all the taxpayers’ money is repaid.
According to today’s Financial Times, Mr Brown will attempt to deflect criticism by proposing that the taxpayer gets a slice of any windfall profits made by a private buyer.
Mr Darling is likely to face a rough ride when he spells out the full details.
Shadow chancellor George Osborne said: “Gordon Brown is mortgaging the taxpayer to try to get him out of the political hole he’s dug for himself.
“It looks like the British people could be billions of pounds in the red for years to come thanks to his economic incompetence. How does this square with the government guarantee to get all the taxpayers’ money back?”
Liberal Democrat treasury spokesman Vince Cable said that it had been “dreadfully mishandled” by the British government.
“This is not a private-sector solution. The private sector isn’t taking any risks. It is the taxpayer that is taking all of the risks,” he said.
“We have a combination now of being taken in for what’s little better than a confidence trick, primarily in order to help the Government to save face and I think they will be found out.”
The British government was forced to act after the leading suitors for the bank, Virgin and Olivant, were unable to raise sufficient funds themselves on the international money markets due to the continuing global “credit crunch”.
Virgin were reported to be working on an improved offer to gain the support of Northern Rock shareholders.
Virgin boss Richard Branson claimed at the weekend that his team had put together a “winnable” bid, although it appears that shareholders remain unconvinced.
However, it is expected that they will receive a warning today from Mr Darling that they will receive little or nothing for their holdings if there is no agreed private-sector solution and the British government is forced to nationalise the bank.
There was some surprise and anger that Branson was part of a business delegation accompanying Mr Brown on his visit to India and China at such a sensitive stage in the negotiations.
Mr Brown insisted that he (Mr Brown) was not involved in any of the commercial negotiations for the sale of the bank.
