Olivant says no to the Rock
Feb 5 2008 by Adrian Pearson, The Journal
HOPES of a private sector rescue of Northern Rock were dealt a blow last night after one of the leading contenders pulled out just before the bid deadline.
The last-minute U-turn by the Olivant group – which leaves only two bids in the running – came because the Government has insisted its £25bn loan must be repaid within three years.
Sir Richard Branson’s Virgin Group and an in-house team led by director Paul Thompson are now under consideration by the Government, though neither have said they can fully repay the loans and there have been no guarantees on jobs in the North-East. Nationalisation is still an option being considered by the Treasury as the Prime Minister and the Chancellor begin the task of assessing bids.
A statement by investment group Olivant, headed by former Abbey chief executive Luqman Arnold, said it was not submitting a final bid for the bank.
Mr Arnold said: “Despite working intensively, we have been unable to formulate a value creation proposal which meets our investment criteria while also respecting HM Government’s proposed financing terms and the interests of other stakeholders in the company.”
Olivant had previously been thought to have a strong case in its bid to parachute in a new management team and pay off the loans over a five-year period. The in-house bid from Northern Rock has promised every penny of the Bank of England’s loans will be repaid – a key part of the Government’s plans for the bank. But with Rock bosses unable to say when they will finish paying back the taxpayer, it is likely that their bid will come up against the same hurdle as that which hit Olivant.
Virgin has promised to inject £1.25bn into Northern Rock and take a stake of 55% in the firm. The equity will be a mix of cash and new shares, the group said.
Sir Brian Pitman, former chairman of Lloyds TSB, is a leading figure in the Virgin bid. He said: “We have made a proposal that seeks to stabilize the company and rebuild it as a trusted and thriving institution under the Virgin brand with a long-term future.”
He added that under the Virgin plan, taxpayers’ interests would be protected and existing shareholders would be given the opportunity to invest “alongside, and at the same subscription price, as the Virgin Consortium”. Small shareholders group spokesman Robin Ashby said the latest news in the battle for Northern Rock was “an all round disappointment”. He added: “It’s bad for everyone. A restructuring process would lead to substantial job losses as you reduce parts of the business.
“The Foundation will lose out because there is less money to be made under the Northern Rock bid and that means less profit for the charity. Of a bad bunch, the in-house team may have to be the best on offer for shareholders. We keep hearing about nationalisation and, given the strength of these offers, they may well have to go ahead with that.”
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MP fears for future of bank’s workforce
THE final decision on Northern Rock is now less than a month away.
With the two final bids in, the Government can begin trying to figure out how it will get back the £25bn loaned to the bank since September.
And if neither of these two bids is satisfactory – and neither have promised to meet a three-year deadline – the Government will have to consider its third option, nationalisation.
Any potential deal must be approved by the "Tripartite Authorities" comprising the Treasury, Financial Services Authority and the Bank of England. Newcastle Central MP Jim Cousins has followed the bank’s crisis both through his role as an MP and as a member of the Treasury Select Committee.
He said last night that the future was bleak for its 5,600 North-East employees.
"I’m disappointed that Olivant pulled out but it is not really a surprise. It is harsh to say, but the job prospects for the bank are bad, and this would get worse under nationalisation, which is still an option. Once the bank is nationalised, the workforce would end up losing out, as EU rules take effect. The European Commission would require the Government to wind up the bank as fast as possible and get it off its balance sheet.
"And the options on offer at the moment do not look good for the staff. The Northern Rock bid has more negative consequences for employment than the Virgin bid, but neither are likely to safeguard all jobs." A leading economist last night said the Government may have no option but to nationalise.
Trevor Williams, chief economist at Lloyds TSB Corporate and a member of the Shadow Monetary Policy Committee, said: "The Northern Rock might not survive as an entity. It’s touch and go. We may see its assets disposed of and ultimately the taxpayers will pick up the bill. It’s doubtful whether the shareholders will get any money. It’s a close call."
Page 2: Branson’s Virgin Money left as the front-runner
