Govt reveals Northern Rock plan


Govt reveals Northern Rock plan
The Treasury has announced details of a scheme to aid the sale of struggling bank Northern Rock.

It intends to turn the £24 billion lent to Northern Rock last September by the Bank of England into bonds guaranteed by the government.

These will be sold to private investors under the plans, drawn up by investment firm Goldman Sachs, potentially making it easier for a takeover bid from the private sector.

Such a move would avoid nationalisation of the bank, which was dealt a severe blow by inter-bank lending difficulties caused by the US subprime collapse. However, it is unclear if private buyers will have the cash required for the deal.

"This new financing structure would only be available for proposals that would protect taxpayers' interests," the Treasury said in a statement.

"This structure would ensure all Bank of England loan facilities to the company are repaid in full, with interest, upfront, as soon as the funds are raised."

The government's proposals must be approved by the European Commission, which could reject them under competition rules.

Should the last-ditch effort fail to attract a bidder by February 4th legislation pushing through a temporary nationalisation of Northern Rock would then be introduced into parliament.

The Treasury emphasised it would manage the company "at arms' length on a commercial basis" in these circumstances.

Yesterday prime minister Gordon Brown, speaking in New Delhi, said: "If a number of commercial companies are expressing interest in the future of Northern Rock then it's right that the government explore all options available to us.

"We would be failing in our duty if we did not look at the commercial offers that have been made."

Shadow chancellor George Osborne commented: "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."

Shares in Northern Rock increased by 28.68 per cent to 83p in today's early trading.

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