Brown is urged to settle Rock’s future
Jan 8 2008 by William Green, The Journal
GORDON Brown is under pressure to end uncertainty over Northern Rock after admitting he did not know when a final announcement over its future would be made.
TUC regional secretary Kevin Rowan issued the call yesterday as Newcastle Central MP Jim Cousins stressed patience was needed to secure the bank’s future and thousands of North-East jobs after the Prime Minister signalled a goal was to recover a reported £25bn in public loans to the troubled Rock.
Mr Brown also appeared to suggest a “bad business plan” was behind Northern Rock’s difficulties, although the company blamed the “unprecedented” closure of money markets it had relied on for credit.
The developments come amid city warnings that fears of a house price crash may derail the sale of Northern Rock.
Potential bidders need to secure £10bn to £15bn of funding from investment banks that are said to be increasingly reluctant to secure loans against Northern Rock’s mortgage assets – most of which are of good quality – in the face of falling house prices. Olivant investment group and a consortium led by Sir Richard Branson’s Virgin are both fighting to take control of Northern Rock.
Other options could include an in-house rescue and nationalisation.
TUC chief Kevin Rowan said: “From the region’s point of view and the workers’ point of view in Northern Rock, we are very keen to see the uncertainty hanging over them resolved.
“Clearly, there are people out there who are interested in taking over the bank because of the asset that it is and clearly the workforce is part of that asset.” He said the Government must continue to stress it wanted Northern Rock maintained as a business that was efficient and valuable to the region.
“The sooner we get a positive solution to all the discussions, the better,” he said.
Mr Cousins, who sits on the Commons Treasury Committee, said there was the basis of a very good business in Northern Rock, but the bank and the possibility of a good deal for the Government could be put at risk if £25bn was immediately removed or taken out over a short time.
“If we are going about this properly, the money that the Government has loaned Northern Rock and the Bank of England has loaned Northern Rock will prove to the best investment that any Government has ever made, but it will require patience,” he said.
The warning came after the Prime Minister told BBC Radio 4’s Today programme yesterday that guarantees had been given against “very considerable assets” held by Northern Rock.
“We are negotiating with prospective purchasers and one of these various parts of the negotiations is to make sure that the Government assets are secured,” he stated.
“Now I don’t know when the final announcements will be about this, but what I do know is that we achieved the first part of what we set out to do,” said Mr Brown, who insisted savers and mortgage holders were protected and financial instability stopped from spreading.
Northern Rock said it was aiming to complete a strategic review by February to provide the best possible outcome for all stakeholders.
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Outcome of shareholders’ meeting could be crucial to bank’s future, warns MP
Newcastle Central MP Jim Cousins issued the warning over the extraordinary general meeting (EGM) on January 15 after it was called by hedge funds RAB Capital and SRM Global amid claims that shareholders’ views are being overshadowed by “political considerations”. RAB chief executive Philip Richards has written to shareholders urging them to back resolutions requiring the bank’s board to get majority approval from them for any major transaction.
The hedge fund, which owns more than 7% of Northern Rock, also does not want the holdings of shareholders to be diluted but is prepared to pump new cash into the firm.
A fund spokesman added: “We want to be part of the constructive solution rather than being cut out.
“We are hugely supportive of this business because we think it is a good and viable business.”
Mr Cousins, who sits on the influential Commons Treasury Committee, said: “If resolutions are passed which in effect block any disposal, any options for sale or any options for raising new equity, then there is a very, very serious situation. Clearly any long-term solution for the bank might involve a sale, but will certainly involve raising new equity and so I think the crucial next step is the outcome of the EGM.”
But the Labour MP is hoping a long-term solution to safeguard jobs will be in place by mid-February following the meeting, with proposals from Virgin Money and investment firm Olivant still on the table.
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