Northern Rock to Be Temporarily Nationalized
Troubled UK bank Northern Rock will be temporarily brought under public ownership, as none of the private sector solutions sought for the bank was good for taxpayers, Chancellor Alistair Darling said on Sunday.
Virgin Group and an in-house group had submitted offers for Northern Rock but the government has said repeatedly that it wants to make sure that the taxpayers are protected.
"In the current market conditions we do not believe the two proposals bring enough value for money to taxpayers," Darling said.
The bank, which got around 25 billion pounds ($49.14 billion) in government aid to keep it afloat since it ran into trouble because of the global credit crunch last year, will continue to operate as a commercial bank, taking deposits and making loans, he said.
Both proposals from Northern Rock's suitors involved a subsidy at below market rates and the private sector, not the public sector, getting most of the proceeds of the business, he added.
The bank's shares will be suspended from trading on Monday, when a bill detailing the plan to temporarily nationalize the bank will be published.
"This is a temporary period of public ownership," Darling said, adding that the bank's transfer back to private hands will take place when the market conditions will improve.
Billionaire Richard Branson said he was "very disappointed" by the government's decision, Reuters reported.
Shareholders of Northern Rock will receive some compensation, Darling said.
"The legislation will enable the government to acquire the bank's shares and its assets. It will provide for compensation to be determined by an independent valuer," he said.
He added that the compensation would be calculated assuming that the bank had not been propped up by government loans.
Ron Sandler was appointed to lead the bank, and he will travel on Monday to the bank's headquarters in Newcastle to discuss with the shareholders and the bank's employees.