Alistair Darling, the UK Chancellor of the Exchequer, has warned it may be necessary to nationalise Northern Rock as various investment firms continue in their attempts to acquire the struggling bank.
The Bank of England has lent Northern Rock, whose funding evaporated when the short-term money markets closed this summer, more than £20 billion ($39.2 billion; €26.5 billion).
Speaking before the UK Treasury Select Committee, Darling said: “All options including nationalisation are on the table. All of us believe a private sector solution would be highly desirable… People who advocate nationalisation point to it as a stepping stone to ultimate privatisation,” he said.
Both a consortium led by Richard Branson’s Virgin Group and investment firm Olivant have submitted bids for Northern Rock. It is still unclear whether either bidder has been able to secure financing for their bids. A consortium of US bank Citi, German bank Deutsche Bank and UK bank RBS has been in contact with both bidders in an attempt to find a funding solution.
Goldman Sachs, which is undertaking a review of the business to be published today, has reportedly made contact with several sovereign wealth funds in China and the Middle East in an effort to sound out funding, according to media reports.
The Financial Times said in a report that the US bank was also looking at converting the loans into a bond issue. This could allow Northern Rock to continue independently.
US bank JP Morgan has also bought Northern Rock’s Lifetime home equity release mortgages for £2.25 billion. The assets were sold at a £50 million premium to book value and they represent around 2 percent of the bank’s loan portfolio.
Darling said a private sector solution may not be possible. “The taxpayer has a huge interest in this. We want to look after the depositors. We want to make sure we get back the money the Bank of England has lent,” Darling said.
Northern Rock’s shareholders have called on the board of the company to hold an extraordinary general meeting, which takes place on Tuesday. The hedge funds SRM Global and RAB Capital with a combined near 20 percent stake in the bank have tabled suggestions imposing limitations on the board to be voted on at the meeting. Such a move would provide shareholders’ greater control of any sale.
In an apparent reference to the hedge funds, Darling said shareholders' rights were important, but as buyers of shares they should be aware that “shares can go up and they can go down.”