the northern rock nationalisation

Northern Rock Nationalised

18th Feb 2008

The Chancellor Alistair Darling announced on the 17-Feb-08 that the Northern Rock will be nationalized. This ends the chances of the two proposals tabled for Northern Rock being accepted. Previously both Richard Branson's Virgin Group and a management led group had submitted proposals to take over the ailing bank and guide it back to financial viability. The one major stumbling block of both proposals was answering the question of how the government (and ultimately the tax payers) was going to get back the £50bn that it has lent the Rock over the previous few months, while at the same time avoiding the bank being broken up and sold off with mass job losses.

The governments plan appears now to be to keep in place the current management team that has been running the company (as opposed to sending in a team of civil servants) so that the business can continue to run as a going concern. The government hopes that in time it can repay the £50bn of taxpayer’s money it has borrowed and eventually be sold off, back into the private sector at a profit. Obviously with the huge debts it has this is not likely to happen quickly.

What affect will this have on you?

The answer to this question depends on what kind of stakeholder in the Northern Rock you are.

Savers

Now that the government has nationalised (or is about to) the Rock, all of the banks deposits are now government backed. This has the affect of making them the some the most secure savings on offer, safer than any savings deposited with any other non-government bank or building society.

In addition over the last few months as the Northern Rock crisis has evolved the bank has been offering very high interest rates in a bid to sure up its capital base and attract or even retain savers money. These two factors should be enough to have savers flocking to the bank however in reality the sentiment of the financial world has caused many savers to do the opposite and move their money to what they perceive as 'safer options' elsewhere.

Mortgage Holders

These are probably the least affected group of Northern Rock stakeholders. No matter who owns the Rock, they will be required to pay their mortgage repayments each month. Obviously the management of the Rock will be keen to ensure that people do keep paying their repayments on time. In order to reduce this risk their lending criteria is sure to become stronger than it has been in the past.

Shareholders

Shareholders have been hit worst by the Northern Rock Crisis. The company was valued at over £5bn just over a year ago and while today when the shares were suspended following the Nationalisation the value was only a meager £375m. What does this mean for the average shareholder? Well, anyone that had £1,000 worth of Northern Rock shares 1 year ago would only be sitting on about £70 worth now. One crucial decision to come is how much the government will compensate the shareholders. The amount is to be decided by an independent panel however no matter how much it is there are sure to unhappy shareholders wanting more and possibly taking legal action to get it.

Staff

Let’s not forget the poor old staff in this saga. With constant talk of the bank being wound up employers have feared the worst for some time now. Only time will tell how the bank will be run however many fear that a "restructuring" of the bank will result in much feared job losses.