With the “shambolic” sale of Northern Rock dragging on, it’s time for the Government “either to nationalise the bank or to put it into administration”, said the FT.
Nationalisation edged closer on Tuesday as the Treasury agreed to extend its guarantee to more of the ailing bank’s liabilities and thus protect its credit rating. It thereby increased its backing to £56bn – or £1,800 per taxpayer. “To protect its own money, it must ensure others keep doing business” with Northern Rock, said the FT.
What now for Northern Rock?
Every possible choice “comes with big disadvantages”, as Jeffrey Goldfarb notes on Breakingviews. The Government still hopes for a sale, although that would leave the Bank of England (BoE) “owed more than £10bn”
Despite talk of private-sector rescues from Sir Richard Branson and Luqman Arnold, both are “non-starters unless some other bank will share the BoE’s burden”, said Anthony Hilton in the Evening Standard. But banks are reluctant to lend amid the credit squeeze and “why should any intelligent banker” take a risk on the Rock when there are more appealing prospects around?
Nationalisation looks like “the least bad option”, said Hamish McRae in The Independent: “take it over, clean up its loan book, stick in decent management and hope to sell it at a profit in three or four years’ time”. However, there is a risk that the bank will not recover and will thus end up being wound down after “a few years of limping along”, said Goldfarb.
Administration would almost certainly result in liquidation, leading to 6,000 lost jobs, a freeze on deposits and a fire sale of the mortgage book. It may also “spook the market” and spread fear to other banks. But it may be better for the Government to “take the pain up front”, rather than find itself in this situation again in a few years’ time.
NRK; 12m change -93%