Chancellor may extend funding

Nov 20 2007 by Peter Leathley, The Journal

ALISTAIR Darling yesterday signalled a crucial financial lifeline to Northern Rock could be extended as part of efforts to secure the best outcome for the bank and region.

The Chancellor said he owed it to the North-East to find a way forward and warned against setting “artificial” deadlines as he told MPs emergency Bank of England funding for Northern Rock could continue beyond February.

He also recognised the importance of thousands of jobs, the economic impact on the region and the Northern Rock Foundation were vital considerations, after being questioned by North-East MPs in the Commons.

Labour MPs welcomed his comments and said continuing central bank support could secure a better deal for Northern Rock as options for its future are assessed, with more bidders expected to come forward.

Mr Darling said the Government had made it clear to the company that proposals needed to be brought to a head.

“But we have never said that everything would stop at the end of February and we couldn’t possibly continue,” he said.

He added the best option to secure repayment of the Bank of England loan was to assess proposals, and then decide on rate and timing of repayment.

“But to box ourselves in now and to exclude options without having properly considered them would be the wrong thing to do,” said Mr Darling who came under fire over the issue from Tories and Liberal Democrats.

He said he fully expected to get back the loan – estimated at £24bn – as it was secured against Northern Rock assets, including its high quality mortgages. And the Chancellor stressed the Government would have a veto over any rescue plans but appeared to reject Liberal Democrat calls to nationalise the bank.

His comments came after Newcastle North MP Doug Henderson called for job safeguards and urged bidders to “itemise” their employment plans.

Blyth Valley MP Ronnie Campbell said: “We know the money is important to pay back the taxpayer but these jobs, 6,000 is a lot of jobs, in the North-East of England, we can’t afford to lose them.”

Mr Darling expressed hope any interested parties would “bear in mind” the vital work of the Northern Rock Foundation after being asked about its future by Durham City MP Roberta Blackman-Woods.

Newcastle Central MP Jim Cousins said: “It means the workers, the employees and taxpayers have got the opportunity of getting a better deal because they don’t have their hands tied behind their back.”

------------------------------------------------------------------

UNION bosses expressed their solidarity with the concerned workers of embattled North-East bank Northern Rock yesterday.

The beleaguered bank employs more than 5,700 people across the region, but fears for the future of those workers continued to increase yesterday as the Conservatives accused the Government of putting shareholders before staff.

Yesterday the secretary of the Newcastle Centre 1901 branch of Unite union expressed his sympathy for workers.

Ray Smith said the union, which represents many bank workers, understood the concerns and fears of employees and told how bosses wanted to show their solidarity with them.

He said: "The Newcastle Central branch of Unite sends their support and solidarity to workers in the bank industry at Northern Rock.

"We want them to know, if there is anything we can do, then people should come to the branch and see us."

------------------------------------------------------------------

No discussion on ‘last resorts’

THE Government is facing an increasingly tricky dilemma in deciding how best to secure the future of stricken mortgage bank Northern Rock.

Chancellor Alistair Darling’s preferred option is to see a sale of the whole company as a going concern to a willing buyer. But yesterday’s announcement that approaches have so far come in "materially below" the value of the company have left the scenario of an outright sale looking far less likely.

While the Government is keen to allow time for a viable offer to present itself, it is no doubt turning its attentions to the other options available. "Plan B" would be a part-sale of the group, according to details in a leaked sales memorandum last week.

This would see Northern Rock’s assets and business sold on, but leave shareholders invested in a company that holds only the multi- billion pound Bank of England loans. Northern Rock’s shareholders would receive little value once the substantial debts have been unwound.

As the credit crunch shows no sign of abating anytime soon and in view of the brand damage so far caused to Northern Rock, its management team would face a tough job in clawing the group’s way back to health. The Government could, therefore, be left with two choices: to put Northern Rock into administration or nationalise the bank. Both are seen as last resorts.

Mr Darling refused to discuss either option yesterday.

The Rock’s shares closed down 28.4p yesterday at 104.2p.

------------------------------------------------------------------

Shareholders before jobs row

CONSERVATIVE’s have accused the Government of putting Northern Rock shareholders before safeguarding jobs.

Chancellor Alistair Darling yesterday angered unions and opposition MPs by omitting job security from his list of bank promises.

Mr Darling said his interests were: "First, to protect the interests of the taxpayer. Substantial sums have been lent and this money has to be repaid at an appropriate time and rate.

"Second, to protect depositors. It is essential we do everything we can both to safeguard their interest and to maintain the service provided to them.

"And, third, to maintain wider financial stability."

It was not until prompted by shadow chancellor George Osbourne that Mr Darling acknowledged the concerns of North-East MPs and said he would seek to avoid job losses.

The bank has welcomed Mr darling’s promise of loans and backing while the sale continues.

A spokesman for Northern Rock union Unite said: "We have always called for the bank to remain independent, for it to remain a North-East institution and most of all for jobs to be secured."