In an emergency bill, the government decided to bring Northern Rock under public ownership ‘temporarily’, stating the move was taken to protect taxpayers’ interests.
However, multiple objections have arisen around the move, not least over the revelation that £45 billion worth of Northern Rock’s high value and high quality mortgages were securitised to an offshore asset fund called Granite when the lender was looking to expand.
Critics have accused the government of leaving taxpayers with low-class mortgages on Northern Rock’s books and Vince Cable, Lib Dem Treasury spokesman, said the government was ‘asset stripping’.
However, the Treasury hit back, stating Granite was entirely independent of the lender and there remained a substantial amount of high quality assets on Northern Rock’s mortgage books.
Darling also said the arrangement had been suspended upon nationalisation and Ron Sandler, the lender’s new executive chairman under nationalisation, would be the man to decide whether it would continue.
Questions have also been raised over whether the nationalisation of the bank flouted EU state aid laws, if the support from the government is seen to distort the market.
The EU competition commission has reportedly requested information on the move and lenders have also voiced concern.
It had appeared that a private solution to save Northern Rock was due to be finalised, with the two bidders – Richard Branson’s preferred Virgin consortium and the Northern Rock board – both laying out their rescue plans to the government.
However, the Treasury returned an ultimatum to the two bidders to improve the offers and days later announced the move to nationalisation.
Shares in Northern Rock were immediately suspended upon the announcement and an independent evaluation will now take place to determine the compensation due to the shareholders.
However, the UK Shareholders Association (UKSA) stated that it believed shareholders would receive nothing, and said: “UKSA intends to pursue any legal options available to it to thwart the nationalisation process and to ensure that fair and reasonable compensation is paid.
"We will not accept the transfer of this company to a third party after some temporary nationalisation from which that third party will subsequently make substantial profits.”
Jonathan Cornell, managing director of Hamptons International, said: “What I’m most surprised about is that it has taken five months for the Chancellor to make his decision. It appears he was somewhat optimistic expecting a lucrative private sector deal.
“The reverberations will be huge and this has largely dented consumer confidence, which is disappointing in a time when two recent rate cuts should have contributed towards a much needed boost. The prospect of many job losses will also add to increasing economic woes and will be met with fury in the North East.
“Nationalisation is the most prudent way of attempting to rectify the bank’s situation and I feel that in time, Northern Rock will be restored to a profitable status.”
