Olivant is out - where now for Northern Rock?
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So three becomes two. Luqman Arnold's Olivant has dropped out of the running to take over Northern Rock. Why? Apparently because it doesn't think it can make a real profit.
The government, desperate to look a tiny bit tough, has asked that all the money owed to the tax payer (currently running at £24bn) is returned within three years. Olivant thought it needed five. So that's them out, leaving only Virgin's offer and that from the management of Northern Rock themselves. So is either of these any good? Not really.
The Virgin offer is really good for Virgin in that it allows Richard Branson to value his Virgin Money group at a fairly preposterous sounding £250m and in that it gives it access to all of Northern Rock's customer lists which it will then use to flog Virgin Money products. But it isn't much good for shareholders who will be expected to stump up £500m of the £1bn being put in to the business and it isn't much good for taxpayers either.
There is talk of us getting a fee of some kind in exchange for our loan guarantee and a chance to grab a slice of any upside there may be from the business in future but with competition from Olivant gone what are the odds Branson manages to negotiate these inconvenient clauses out of any final deal?
Then there is the management offer. This involves raising a mere £500m to stabilise the business before running it down to pay off the government loans and then attempting to keep a downsized Northern Rock going as a stand alone business. But what's the point? If they're going to do this why not just do it under a state umbrella? It is pretty much exactly what would happen if the bank was nationalised making it something of a non plan, a low conviction plan if you will.
So what would we do? Well, as everyone keeps saying we wouldn't start from here. However now we are here we don't think there is much choice. The government should stop with the faffing and the fiddling, formalise the nationalisation of the bank (it is effectively nationalised already in that without taxpayer support it would be bust), and run it down, paying off the debts to itself as it goes. How hard can it be for heavens sake? Northern Rock might be a bad business but it isn't exactly a complicated one. There are plenty of competent semi-retired bank managers around who are perfectly capable of managing a mortgage book - all the government needs to do is get a couple of them in and leave them to it.
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