Dithering Darling finally snaps up the Rock
The Government faces “a seriously rough ride” for nationalising Northern Rock, said Lex in the FT. But it was the right decision and it should have been taken months ago, as Martin Wolf noted in the paper. Once it was evident that the stricken bank “could only survive with generous public-sector guarantees”, any so-called “private-sector solution” was a mirage.
What happens now?
The Government claims it will manage at arm’s length, while the Chancellor insists it will be “business as usual”. What this means is that under new chairman, Ron Sandler, Northern Rock’s mission is to “return to being a provincial medium-sized bank as quietly as possible”, said Nils Pratley in The Guardian.
The inevitable reality will be “substantial redundancies” and funding mortgage activity more conservatively – which should spell the end of its controversial 125% mortgage deals. And despite concern that the nationalisation breaks its rules on state aid, the EU is “highly unlikely to rock the boat” – after all, other European countries may soon be “looking to bail out some of their own banks before long”.
But the overall loan book must shrink rapidly, said Alex Brummer in the Daily Mail. The Rock has recently used its Government guarantee to offer “eye-popping bonds” of up to 6.9% and “the cash has been rolling in” – sparking complaints from rivals concerned about unfair competition. Shareholders, meanwhile, are likely to be wiped out. Despite threatened lawsuits, they don’t deserve any compensation, as Pratley noted: the shares “were worthless without Government support”.
Can Northern Rock recover?
Much depends on the economic outlook. Alistair Darling’s suggestion that the bank’s £87bn mortgage book is blue chip will prove optimistic if house prices continue to fall, said Patrick Hosking in The Times. The Rock was the most aggressive lender just as they were peaking. A bigger problem is its £8bn book of unsecured debt – there is “very little comeback if borrowers get into difficulties”.
Even less likely to recover is Alistair Darling, whom the City deems “finished” owing to his protracted dithering on Northern Rock, as well as his “shambolic” attempts to reform capital-gains and non-dom taxation, said Anthony Hilton in the Evening Standard. If he isn’t ditched soon, “Brown and all his ministers” will be, come the next election.
