Bankers throw in the towel in Rock affair
The United Kingdom government has all but ruled out a commercial rescue for Northern Rock after conceding that funding for a deal cannot be found.
It is understood bankers who have been working for weeks to put together a private £15 billion (Dh109bn) debt funding package have thrown in the towel, leaving the government to find another solution, though talks with bidders including Virgin and Olivant about some form of a sale continue.
As the Newcastle-based lender enters the last few days before a showdown with shareholders at an emergency meeting in Newcastle on Tuesday, the Treasury’s adviser, Goldman Sachs, has been locked in discussions with the Tripartite Authorities. Goldman updated Northern Rock’s board on the government’s progress yesterday, but is not expected to inform the board of the company’s fate until the end of next week.
Options on the table include full nationalisation or the government leaving its funding in place for an extended period in a move that would require approval from Brussels, although it is understood the government has had an initial steer from the European Union that approval would be given.
Citigroup, Deutsche Bank and Royal Bank of Scotland have been poring over Northern Rock’s books for several months, but it looks increasingly certain they cannot lend up to £15bn to a bidder on terms that would be acceptable to bidders.
One banker said: “It was always 50:50. That now looks significantly less likely. Collateralised mortgage assets are not flavour of the month.” Bidders are also growing increasingly dubious that lending banks will put up the £10bn to £15bn of funding they had indicated might be provided.
However, it is thought the government could choose to leave the Bank of England loan in place, which would require an application to the European Union. It may demand some kind of equity warrant so the taxpayer participates in the upside if the bank recovers, possibly in the form of a “golden share”.
Northern Rock on Friday attempted to show it is taking steps to address its sickly state, selling a portfolio of equity release mortgages to JP Morgan Chase at a premium to its balance sheet value. The portfolio is worth £2.2bn and Northern Rock will make a £50 million profit on the sale. The move will enable it to repay almost £2.3bn of the Bank of England’s £26bn loan.
The latest move was seen as an encouraging sign, however analysts noted that Northern Rock had sold one of its most attractive portfolios. Trustees of Northern Rock’s pension scheme are attempting to set up safeguards. They have asked the company to place members on the same footing as depositors by setting aside enough mortgage assets to guarantee that all promised benefits could be fully paid if the bank becomes insolvent. (The Daily Telegraph)
Treasury lines up new chairman
Ron Sandler, the former head of insurance market Lloyd’s of London, will become Executive Chairman of Northern Rock if the troubled mortgage lender is nationalised.
The Treasury has recruited Sandler to help steer the high-street lender should it fail to sell off the business.
He was regarded as having brought back confidence to the world’s oldest insurance market after it was brought to its knees in the mid-1990s facing a wave of asbestos claims.
Sandler told The Sunday Telegraph: “In the event that the bank is taken into public ownership, then I would go in on day one as executive chairman. But I should stress that this is only in the event that the company is taken into public ownership. There are still a host of private sector solutions being examined.”
The appointment is understood to be part of a package of plans for the Northern Rock, should a commercial rescue from suitors including Virgin and Olivant fail to emerge.
Sandler said: “You should consider this as contingency planning.” He said he was first contacted about the role by Treasury advisers last November, with appointment as provisional chairman finalised last month.
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