Trading in Northern Rock shares was suspended on the London Stock Exchange on Monday following the government’s decision to nationalise the struggling mortgage lender.
The announcement of the suspension had been expected.
Treasury chief Alistair Darling ended months of speculation over the fate of the company on Sunday by announcing the decision to nationalise after giving up on finding a private buyer.
He said the government would introduce emergency legislation
on Monday to take over the bank.
“We had independent advisers look at this, and they all pointed in one direction: the best thing to do was to take the bank into a period of temporary public ownership before ultimately trying to return it to the private sector, which is the only solution in the long term, because the government cannot run a bank,” Darling said in an interview with the British Broadcasting Corp. on Monday.
David Greene, a lawyer representing 6,000 Northern Rock shareholders, said that legal action appeared inevitable.
“The shareholders are clearly angered by this, having been treated with utter, utter disdain throughout this process,” he told BBC radio.
“We will have to look at the proposals for how much they pay for the business and for the assets. I think the difficulty that is going to come is (on) what basis does the valuation take part?”
Darling said neither of two private proposals - from Richard Branson’s Virgin Group and an in-house bid from the bank’s management team – “delivered sufficient value for money to the taxpayer.”
The government has said more than $49 billion in government loans must be paid back within three years.
Darling said the two private proposals involved risks for taxpayers and a very significant government subsidy. Both also involved bidders paying below market value while the government continued to provide guarantees and financing.
Branson protested the government’s decision to nationalise the bank.
“We believe nationalisation is not the right answer and that a commercial solution would have been the best way forward,” Branson said in a statement.
Northern Rock ran into trouble in September because it relied too heavily on short-term money markets instead of deposits for funding. A subsequent profit warning and appeal to the Bank of England for an emergency loan led to long lines at branches nationwide in the first run on a British bank since 1866.
The government had been in the middle of an auction process to find a private buyer for Northern Rock, with revised bids submitted this weekend by Virgin and the in-house management team.
Darling had a deadline of March 17 to choose between the bids and nationalisation. That is the date when he must submit a restructuring plan to the European Union for state aid approval.
The opposition Conservative party said they would not oppose the nationalisation, but criticised the government for not deciding sooner.
However, shareholders reacted angrily to the government’s abandoning a private sector solution.
“It’s terrible for Britain’s reputation as a financial center and bad news for the shareholders having the bank stolen away from them,” said Robin Ashby, founder of the Northern Rock Small Shareholders’ Group.
Corporate troubleshooter Ron Sandler has been appointed executive chairman of the newly nationalised bank, Darling said. Former Swiss Re finance director Ann Godbehere will be chief financial officer.
Sandler told reporters that he expected the bank to be slimmed down to a “more sustainable size,” but declined to comment on possible job cuts. (AP)
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