Page last updated at 17:10 GMT, Monday, 18 February 2008

Rock's rescue plans 'carry risk'

Northern Rock HQ

All plans to save Northern Rock carry risks and there is no guarantee they will succeed, the bank's new executive chairman Ron Sandler has said.

However, there was a good platform from which to stabilise the bank and repay billions of pounds of loans, he said.

His comments came after the government rejected two private sector proposals and said it would nationalise the bank.

Chancellor Alistair Darling defended the move in Parliament as he came under fire from opposition MPs.

The nationalisation of Northern Rock is a disaster for the taxpayer, a disaster for this government and a disaster for our country
David Cameron, Conservative leader

Shadow chancellor George Osborne said Mr Darling was a "dead man walking" and nationalising the bank had taken the country "back to the 1970s and the failed policies of Labour's past".

He added that the Conservatives would vote against the emergency legislation the government wants to push through later this week in Parliament so that it can nationalise Northern Rock.

Business moves

Earlier in the afternoon, Mr Sandler, who has been charged with finding a strategy for the lender, said it was too early to discuss job cuts.

He is the former boss of the Lloyd's of London insurance market and is widely respected for restoring confidence in Lloyd's after its years in financial disarray.

But the question already on many Northern Rock workers' minds was what kind of redundancy package they would be offered, one Northern Rock employee said. "There were a lot of gloomy faces today," said one worker at Northern Rock headquarters in Newcastle.

Northern Rock facts and figures

Speaking after a meeting with staff and managers, he said Northern Rock was well placed to recover from the problems that were started by a slump in the US housing market and amplified by a freezing up of global credit markets.

But, Mr Sandler cautioned that "nothing is guaranteed in this world".

"All of the possible solutions carry with them an element of risk," he added. Mr Sandler explained that it would take years for the bank to pay back its loans from the taxpayer.

"It is clearly unrealistic to talk about months," he said. "We are clearly talking about a period of some years."

In the meantime, he said, it was "business as usual" at Northern Rock.

'Right time'

Prime Minister Gordon Brown has been defending the government's decision to nationalise Northern Rock.

At a Downing Street briefing he called it "the right move at the right time for the right reasons".

But Conservative Party Leader, David Cameron said that Mr Darling did "not now have any credibility as Chancellor" and called for his removal.

"The nationalisation of Northern Rock is a disaster for the taxpayer, a disaster for this government and a disaster for our country." Mr Cameron said.

Robert Peston
It is the biggest decision made yet by this Prime Minister
Robert Peston, BBC Business Editor

Liberal Democrat Treasury spokesman Vince Cable has been calling for nationalisation for many months.

"It is clearly preferable to take this bank into temporary public ownership rather than have a bad private sale to somebody like Sir Richard Branson under which the taxpayer would continue to have all the risks and the liabilities and a private owner would take all the benefit." Mr Cable said.

The prime minister said that the government had considered two offers from private sector buyers for Northern Rock, but decided not to accept them.

"We will have and always will put the interests of taxpayers first," he said.

When asked about the prospect of job cuts at the bank, the prime minister said: "If we hadn't intervened in August it would have gone under, we ensured an existence for the company.

"It was the best decision to protect depositors, mortgages holders and employees of Northern Rock."

Turned down

Chancellor Alistair Darling said the two private takeover offers did not offer the taxpayer "sufficient value for money".

Nationalisation is not the right answer and a commercial solution would have been the best way forward
Richard Branson, Virgin Group

"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," he told the BBC.

UK taxpayers are currently subsidising the bank in loans and guarantees to other lenders to the tune of about 55bn. Under the new strategy this will jump to 110bn, a cost of 3,500 per taxpayer.

Mr Darling said it was better for the government to hold onto Northern Rock until market conditions improve and its value increases.

He emphasised that "the long-term ownership of this bank must lie in the private sector".

As a tax payer, I would like to know what return we will get from this investment
Sara, London

A consortium led by Richard Branson's Virgin Group had put forward a rescue proposal for the beleaguered bank.

"We believe nationalisation is not the right answer and that a commercial solution would have been the best way forward," Mr Branson said in a statement.

The board of Northern Rock, which had also put together a rescue package for the bank, said that it was "very disappointed" with the government's decision.

Shareholders worried

The government is set to introduce emergency legislation to temporarily nationalise Northern Rock. Trading in Northern Rock shares was suspended on Monday morning.

Under nationalisation rules, the bank's shareholders will be offered compensation for their holding at a level set by a government-appointed panel.

The calculation will be based on the bank's value without government guarantees.

However, analysts say under those conditions shareholders will receive very little.

It seems likely that shareholder groups will take legal action over the government's move.

Roger Lawson, chairman of the Northern Rock Shareholders' Action Group, said he thought there were "good grounds" for legal action.

"We've already considered it and obviously SRM - who are one of the major institutional shareholders - have effectively promised legal action already if nationalisation went ahead," Mr Lawson said.

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