Rock may be run by state soon

Jan 16 2008 by Adrian Pearson, The Journal

NORTHERN Rock chairman Bryan Sanderson yesterday admitted nationalisation of the bank is “looming ever closer” and warned it would be a disaster for the North-East.

Mr Sanderson told yesterday’s extraordinary meeting of shareholders that nationalising the Rock “would be immensely damaging to the financial reputation of London and the UK and to the people of the North-East” and insisted that a private sector solution was still the preferred option.

Last night Prime Minister Gordon Brown confirmed that the Government was now considering taking the bank into public ownership.

Although companies had expressed an interest, the move might be necessary to protect the British economy, Mr Brown said.

“Because stability is the issue we will look at every option and that includes taking the company into public ownership and then moving it later back into the private sector,” he said. “So that is, yes, one of the options that has got to be considered”.

There were reports last night that the Government had prepared a short emergency Bill to nationalise the Rock. The Bill could be put through the Commons with just two days’ of debate.

The two biggest shareholders in Northern Rock warned nationalisation would cost taxpayers £110bn and lead to the bank’s North-East operations being “wound down”.

Members of the Unite union wearing “I am Northern Rock” T-shirts handed out leaflets to shareholders at yesterday’s meeting.

Unite national officer Karen Reahy said: “Staff issues seem to have been on the back burner throughout all of this. It’s very much been about the financial aspect so far. What we’re clearly saying today is remember the staff.”

Jon Wood, the head of the bank’s largest shareholder, hedge fund SRM Global, said nationalisation would cost taxpayers even more and lead to job losses.

SRM owns 10.5% of the bank’s shares and Mr Wood said nationalisation would cost up to £110bn, “leaving even less chance of taxpayers getting their money back, and putting jobs at risk.”

Philip Richards, whose investment group RAB Capital owns 7.5% of Northern Rock, said: “Nationalising the bank will be bad for everyone, and in particular for employees. It is something everyone knows – the Government could not run this bank in competition with other banks.

“They could hardly pump money into it to renew the bank, so State ownership would lead to the bank winding down as they turn away from competition with other banks.

“A nationalised Northern Rock includes a future that progressively shrinks, a company that shrinks is not a happy company and clearly it would have to lose staff over time. But I think the Government recognises that and hopefully would only nationalise as a last resort.”

Mr Sanderson also warned shareholders not to overlook the level of Government support and the interests of the Tripartite Authority – the Bank of England, the Treasury and the Financial Services Authority.

He said: “To those shareholders who think it right to call the tripartite’s bluff and speak out against the Government and the Chancellor, remember the Bank of England and the FSA can withdraw their support at any time and we would not be able to continue to operate.

“It would be wholly irresponsible for your board to take such a risk on your behalf. That’s not a roulette game – it’s Russian roulette.”

Page 2: Managers call for ‘cool heads and patience’