Rock may cost taxpayers £2bn
Nov 15 2007 by Adrian Pearson, The Journal
BIDDERS interested in taking over the Northern Rock are hoping the Government will wipe out nearly £2bn in Bank of England interest payments in exchange for increased security for the 5,700 North-East employees.
The request came after the bank sent a business memorandum to 50 potential bidders detailing the operation’s likely financial future.
The memo said the bank could still owe £6bn in emergency loan repayments by 2010 – prompting bidders to ask the Treasury whether crippling interest rates of 7% could be waived.
Further details of the memorandum have been prevented after Northern Rock sought a court injunction, claiming leaked details contained in the report could jeopardise any future sale.
The High Court granted a limited injunction preventing further details being reported, but rejected moves to ban any mention of material already printed. A number of websites were last night carrying details of the bank’s business case.
The parts of the memorandum which can be reported include three scenarios for the bank. As well as the sale of the whole business, the memo details how the various branches and call centres could be sold separate to the mortgage business.
And the memo assures bidders that profits will reach £643m by 2010 – more than the bank made in 2006.
Last night pressure was mounting on the Government to explain its plans for the bank.
If the Government agreed to remove the interest on the bank’s loans, it would effectively mean writing-off a large windfall for the Treasury.
While some national newspapers have placed the interest at £2bn, it is thought this figure is much higher than the current level of interest owed by Northern Rock.
While none off the four main bidders in the race for the Rock would comment on the possibility of cancelling the interest, The Journal has been told it is one of the “main barriers” to the bank’s independence. Bidders preparing to make an offer for the bank ahead of Friday’s deadline are understood to be waiting for any statement from the Treasury on what has been described as “the elephant in the room for every interested party”. Chancellor Alistair Darling last night said the Government would “very shortly” be issuing guidance on where it stands.
But as The Journal went to press, the Treasury could not give any indication as to when any statement would be made.
Newcastle Central MP Jim Cousins said the workforce must come first in the Government’s plans.
He said: “There is no doubt that the high rates of interest imposed by the Treasury are presenting a serious difficulty to bidders. We need time to discuss the future of Northern Rock, and it may take months to resolve the situation.”
A spokesman for the bank said: “None of the information reported as being in the memorandum should be viewed as guidance to the market as to future outcomes of the strategic review or as an accurate representation of future results.”
