Rock nationalisation 'back on'
A consortium led by Virgin has tonight been told by the Treasury that it is out in front in the contest to take control of Northern Rock - but that at present nationalisation of the troubled bank would be a better outcome for the taxpayer.
The group led by Sir Richard Branson has been told to improve the terms of its rescue plan.
The Treasury wants the Virgin consortium to offer more for the billions in financial support being provided by the Government.
And it also wants a bigger potential stake in Northern Rock for the taxpayer, via a so-called warrant over the bank's shares.
A rescue plan put together by Northern Rock's management has not been killed off.
But the Treasury this evening told the management team that its current proposal is significantly inferior to that put forward by Virgin.
The disclosure will be a bitter blow to the Rock's shareholders - many of whom are very hostile to the Virgin proposal.
They believe the management's plan offers the best prospects of rebuilding the value of the bank's battered shares.
But what may alarm shareholders even more is that if the decision on what to do about the Rock were taken today, the Treasury would opt for full public ownership.
According to a banker close to negotiations, the Prime Minister is calling the shots on what to do about the Rock and is steeling himself to go for nationalisation.
Gordon Brown still hopes that a partial nationalisation deal with Virgin or the Rock management team can be negotiated.
But he is said to be no longer seeking to avoid nationalisation at any price.
"Nationalisation is looking much more likely than it did" said the banker.
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nationalisation at this stage.... if that is not political suicide what is?!?! (Im a student currently, going to graduate this summer... tax is bad enough... tax that wont be used on public spending - i know who i'll be voting come election... by the way - when is old Gordon going to call that?!)
What will you do Robert (I can call you Robert??.....) when the NR story finally comes to an end - you have become a one trick pony....
Quelle surprise - not.
Here's another non-surprise. Virgin will get NR. The threat of nationalisation is just bluster being used by the government so that when Virgin are gifted NR people will assume that Virgin improved their offer and HMG were more than satisfied.
3-5 years down the line and well after the next election, HMG will quietly and discreetly write-off a considerable quantity of the money owed to the taxpayer via creative accounting (formerly known as blatant fraud and lies), in camera via their new secrecy laws, proving that you can indeed fool all of the people some of the time.
I fail to understand what Virgin are offering that cannot be matched by an in-house solution.
In-house has more scope to give the government a warrant and shareholders would probably pay up to avoid massive dilution.
I'm sure the reason why the in-house plans for the future looks less rosy than Virgin is because management do not want to distort the market while owing public money.
Anyone can give rosy projections but that is not the issue.
The key question is whether Virgin Money is more powerful than the NR brand.
NR has way more loyal customers than Virgin Money today.
Still, Virgin companies tend to be very efficient at tax avoidance...maybe that will save some money.
The vast majority of NR shareholders don't want Branson's offer. The choice is really between in-house team and temporary nationalisation. Neil Collins suggested this in the Evening Standard last week: pay shareholders 5p a share and give them a good [convertible] warrant, they'll get their shares back when NR is refloated. As a shareholder, I am happy with temporary nationalisation. The timeline to refloat is 2-3 years, equity dilution is avoided and NR assets would probably be in safer hands.
Yet more government by leak and see.
I suspect that there will be any number of NR solutions tried out on us as the EU imposed deadline looms.
Branson and other interested parties will get their say in the media and then the show will move on.
Oh for decisive government.
Surely the NR staff and taxpayers deserve that at least?
Northern Rock management team or Virgin it makes no difference.
The vast bulk of assets will be owned or indebted to the Treasury.
Public ownership is the current status of the bank, and Public ownership will remain the status of the bank irrespective of who is on the executive management team.
All they are negotiating for (in reality) is who has the cast iron guaranteed right to buy the bank from the Treasury at some later stage should the manage to find sufficient money to afford it.
Good, its my money being used to prop this bank up. I want a say (no matter how small) in how it is run.
What it all boils down to is the government saying to Virgin Money,"If you don't make a better offer, I'm going to hold my breath until I'm blue in the face !"
Our dearest PM is now resorting to games commonly found in nursery school playgrounds !! Nationalisation will mean valuing the net assets of NR at close to nothing and thereby wiping out the value of the NR shares !!
It was obvious from the start that the NR "management" and shareholders, led by the venture capitalists, were only interested in making the public pay for *their* greed !! They want us to use our tax money to shore up the price of their shares AFTER they gambled AND failed in the Big Boys pond !! By that logic, perhaps the government should pay my debts after a spree at Las Vegas !! I could serious do with a fun holiday !!
Some more questions:
Alistair Darling is moving the pieces on the board, but Gordon may be working out the moves.
If so, are they playing a reasonably sound game?
Is Gordon an improved version of Deep Blue? (OK, I just mentioned the IBM chess computer because of the colour)
Is Andy [comment 3] right, and is nationalization a bit of obvious bluster?
Or does it carry more of a threat, which players have to take seriously when planning their next moves?
"I fail to understand what Virgin are offering that cannot be matched by an in-house solution."
How about management and a brand that hasn't been wringed through the press in the last 6 months?
On the downside, I don't understand how any company can undertake to free the government from its guarantees in a certain period of time. If they can't do it today, they can't promise to do it tomorrow with any certainty. Therefore, the government is financing the risk of this all going wrong. They should nationalise and do what Soc Gen did after they realised the mess could not be undone. Sell the positions.
It's astonishing to see that at least 50% of the new management structure proposed by the in house offer is the same as the one that directed the company into it's current predicament....what's more astonishing is that they are being taken seriously by those considering the bids.
Surely Senior Executives would have been leading players in the previously flawed strategy, how can they be considered as the team to lead Northern Rock in the future?
No. 5
Tony, how do you know that a 'vast majority' do not want the Virgin bid? Has there been a vote? Did you get to talk to everyone? No. So far theres been some self appointed talking heads for the share holders who talk nonsense and you seem to be one of them.
I still wonder why the loans to NR were really necessary in the first place. I can appreciate that savers were guaranteed their savings as a necessary step to ensuring financial stability. But since the loans were underpinned by a supposedly strong mortgage book, then were the loans simply working capital to ensure NR continued to trade? Given that NR employs somewhere in the region of 6,000 then were the loans simply a device to ensure continued employment, in which case it's just like nationalisation. And what penalties will the NR directors face? None I suppose; I guess they're free of insolvency law problems arising from their failed strategy by virtue of the government's actions: ie you can't be guilty of wrongful or fraudulent trading if you can luxuriate in knowing that the government has guaranteed the survival of the company. In Parliament, Gordon said that administration would mean a piecemeal sale of NR's assets and thus the full value would not be realised, but is that really true? In any event, is not the outfit being given away at a fire-sale price anyway? Vince Cable had it right from the start: nationalisation pending a sale would have been the appropriate option - it seems almost obscene that the share price of NR rose at various times as the taxpayers largesse increased, thus making profits for those who bought in a low prices and sold quickly. And it's pretty rich that Gordon says that Cameron can't come to a consistent line when he - Gordon - has been a party to all the negitiations, has a detailed knowledge of the state of the books both of the comopany, the economy and the Bank of Englnand and, for what it's worth is "in charge", but can't come to a consistent line himself. The NR saga is partly scandal and partly manufactured. For years we have laid back in a consumer led boom caused by cheap credit and increasing public expenditure (without proportionate increases in output in services). The fiscal drag created by Government means that taxes always have to rise, and if this means ascribing such increases to "protecting the environment" then it just means that the pill is made to look nicer to swallow. For the record, my partner's employment depends on the success of the financial services industry; I can appreciate the plight of those who work for NR, but for her and thousands like her they're all in the same boat, but can hardly expect Government support. They'll just join the 6million+ on benefits, but at least we're told - on the other hand - there's full employment.
Jo, post 2 trust me there are far more interesting, and more frightening stories out there than NR.
Robert won't be short of stories this year and the next couple of years at least.
Trust me things such as PFI; the NHS and particularly the national IT system and the overall property market crash will give much more to report on.
It does look to me as if company is now going to be nationalised, it looks like the in house bid is out of favour and shareholders wont sell to RB so the govt has two choices nationalise it and appoint board to run it or nationalise it and give it to RB.
I can't see govt wanting to run it as this would mean cutting jobs and lets face it who would want to bank with them. So that leaves nationalising it and then giving it to RB and it looks like the govt wants to do this but also wants to keep a minority stake in the company which is tantamount to theft from the current shareholders in my book.
I think the main thing now for shareholders is to ensure they get the correct price for the company and not the pittance the govt thinks it will get away with paying. It is hard to tell what a fair pay would be as the govt are deliberately holding back the accounts from shareholders. Welcome to the banana republic of Gordon Brown.
I'm a student of Leeds Business School, and I'd like to say thank you to NR, Virgin, and HMG because out of 4 years of university education this has to be the best case study I have ever come across. I can't say I'm old enough to have any real experience of what nationalisation has to offer NR, I am however a sucker for what I preceive to be a great management style and a great brand, so for these two reasons alone I wish Virgin the best of luck. To all parties concerned; thank you again, I'm learning from your every moves.
Whatever happens, taxpayers interests must come first.
Northern Rock's management (certainly those who were in position prior to the events of last August) have lost any moral authority to speak on the future of the bank.
That the holdings of shareholders who bought shares since NR first went to the BoE for funding have fallen in value is of no interest - those people were gambling and should have known the risks. For longer-term shareholders, especially those with little knowledge of the financial markets, it's more unfortunate. But even then, a bank whose share price so dramatically outperforms its peers should have been a warning to anyone that unacceptable risks were being taken.
If a deal with Virgin stands the best chance of repaying our loans to NR most quickly, that's the option which must be selected. Regardless of the views of shareholders.
The problem with Northern Rock is nothing to do with money, it's the Brand. The brand is no longer trusted and as such it's value as a banking institution is destroyed.
For this reason and this reason alone the Virgin takeover and trusted brand is the only way forward. Ironically a newspaper magnate lived by the adage that 'Trust is like virginity. Once broken it can never be repaired'
It is also a fundamental misuse of taxpayers money to attempt to save this business against any other businesses in trouble.
Now that it has acted and pledged guarantees it must contain the problem. That is very definitely not to assume the risk by trying to continue as the defunct Northern Rock brand but to transfer as much as possible of the risk to Virgin. But beware of upsetting Mr Branson by being too greedy as once he is gone there are no viable alternatives and I am not sure even the Tories would like to preside over the inevitable financial mess that would surely follow.
The government already has two perfectly good government bodies to absorb NR into without giving all the money and profits to Beardie Branson.
They are National Savings & Investments (which includes the Premium Bonds)
and the Post Office which is also into savings, investments and mortgages.
Why can't NR be merged into them post nationalisation?
Typical Brown spin and bluster, the deal is done with Snake Oil Salesman Branson who will take all the benefits and stuff the taxpayer as he did with his railways and as he has doen with all his business partners.
Its about time teh man of 'change' Brown woke up to real economics and told Branson where to stick his offer.
Brown, and Darling are sinking so badly if they think Branson will bail them out they must really have a death wish
The situation with NR has been something of a media circus, which has all the highs and lows of a Hollywood blockbuster.
GB initially took hold of NR as a temporary measure, expecting some knight in shinning armor to eventually come in and save the day.
What GB didn't expect was to be left with a white elephant that has seen prudent investors retract their interests, when they realised just how much brown stuff the NR is really in.
GB may eventually tell us that he had no other option but to nationalise the Rock, however he did try so I guess that makes things OK.
In the mean time, shareholders are left deciding do I wait to be rescued and risk starving in the process or do I jump now while I still have the energy?
Robert,
If you continue to talk up nationalisation as you have for the past few months it may eventually happen. Why do you appear to have an obsession with this happening?
GB initially took hold of the Rock as a temporary measure, expecting to leave it on some else’s lawn to put back into place.
What GB didn't expect was to be left with a white elephant that has seen prudent investors retract their interests, when they realised just how much brown stuff the Rock is really in.
GB may eventually tell us that he had no other option but to nationalise the Rock, however he did try, so I guess that makes things OK.
In the mean time, shareholders are left deciding do I wait to be rescued and risk starving in the process or do I jump now while I still have the energy?
The NR brand is not bust, they've recently taken in a bundle of new deposits - albeit with a market leading rate and government guarantee in the background, customers are still willing to invest. And for the reasons mentioned above, why shouldn't they?
I'll bet anything you like more money has been saved with NR than Virgin Money recently, and the reason is quite simple - Virgin savings rates are not high. When it comes to savings, loyalty often goes out the window - interest rates speak.
Virgin Money has been going for over 10 years, it is not exactly a rip-roaring success. Why is Branson seen as such a glorious white knight?
I'm actually in favour of giving the in-house team a shot at things. Some of the 'old' management are still there, but in terms of the people who make decisions - chief exec, chairman, and most of the non-exec board - they're all new.
Paul Thompson has a pedigree in turning around poor businesses, i.e. Britannic, so he can do it again.
This business plan he has (little new lending, paying back the govt from existing customers' mortgages being taken away as their fixed rates mature) would also be a perfectly sensible option. It would also be a compromise solution, doing the job of nationalistaion for the govt. There's the added benefit of avoiding endless court action from shareholders (a la Railtrack) if Virgin or Nationalisation goes ahead.
Or is that sound just too sensible?
Nationalisation is now very much the politically astute move for GB.
Taking the long view, every buck that Branson made would be a political nail in the coffin for GB.
Nationalisation, on the other hand, would be the action of a strong leader, not afraid to take the difficult decisions, and putting the taxpayer first before his own preferred course of action.
A nationalised bank would also quickly become an old story of interest only to political anoraks.
Nice one Gordy.
If the NR brand is no longer a viable name, then why, when they launched their high rate savings account not long back, did they rake in £500 million of deposits in 2 weeks? At that rate, the government loans could be repaid in just over 2 years, not the 3 that Virgin are saying is "the best they can do". NR have plenty of assets to sell and everyone seems to have forgotten the 3 banks that just offered to buy £12 billion of them. This is turning into daylight robbery for shareholders and thanks to some truely professional media spin, everyone seems happy with it. Are we all forgetting that it was the government and the media that caused the run on NR in the first place? Why did Barclays manage to borrow billions of pounds just before NR without anyone being told? I wouldn't be suprised to see articles about this all being planned from the start in the years to come.
Re post 15 - Ian.. perhaps I should have made my sarcasm a tad more simple for you. My point is that there ARE more interesting stories to report on in an UNBIASED (ha!-is this really the impartial ´óÏó´«Ã½?) manner - but Bobby (ala Pythons..'I can call you Bobby) insists on regurgitating the same on blaaaaa on NR - time to move on - but does he? no - hence 'one trick pony'... Hope my explanation helps Ian…
"I fail to understand what Virgin are offering that cannot be matched by an in-house solution."
How about management and a brand that hasn't been wringed through the press in the last 6 months?
On the downside, I don't understand how any company can undertake to free the government from its guarantees in a certain period of time. If they can't do it today, they can't promise to do it tomorrow with any certainty. Therefore, the government is financing the risk of this all going wrong. They should nationalise and do what Soc Gen did after they realised the mess could not be undone. Sell the positions.
Dear Mr Peston or should that be Pessemisticton.
Your comments regarding the Northern Rock are always negative yet again you have managed to find bad news in a good news story. your single minded pursuit of NR has made your credibility suspect .
Nationalisation ! we the shareholders dont fear nationalisation because we will just pursue litigation through the proper channels. If the Government nationalises and cuts staff it will be political suicide especially in the Vital stongholds of the North East where this bank hails from.
I would have thought that someone in your position has a modicum of responsibility to the general public and post unbiasedly however this seems never to be the case. I think sir your days are numbered in your position when the Rock saga ends un less you can find another company to brow beat into the penny shares section.
One thing we as shareholders definitely do not want is the virgin consortium to take over Virgin will strip this company down and ruin it
Virgin should stick to selling music thats all they were designed to do and all theyve ever REALLY been outstanding at. The very fact that virgin have been told to up their offer is GREAT news for the shareholders as it means that RB will not get this on his own terms like he does most other things. and in effect this is reflected in this mornings prices. Frankly doom-mongers like yourself are seen by shareholders as in the pay of people like Branson who we suspect is calling in favours to down cry the NR through media sources.
AKA Harry Skinters!
Top of my "ticked off" list - anyone who has borrowed or lent at more than 3 x earning, for more than 25 years, against more than 90% of valuation and anyone who has invested (including the empoyees) in such said institution. 2nd - any institution that intervenes to bail these people out at a cost to me. Had Gordon asked (not that this government is inclined to ask - or keep promises to ask) - I would have supported the notion of a pence per £ bail out for all savers whilst wrapping up (insolvency) and through sale returning the rest of the assets to the savers. It's evident that we need a nanny state and apparantly the best intervention from the government would have been to have curtailed "our" irresponsible behaviour. Having failed to do so, I sincerely hope they get their butts kicked at the next election. Meanwhile - go Richard go !!!! and amplify this mess for all of us by making an absolute fortune. No doubt should my little business get into trouble - you'll all happily stump up !!!
One observation. The way of writing and the nature of the comments by "Jo" in 28 are extraordinarily similar to those of another blogger who, curiously and uncharacteristically, hasn't contributed (insofar as the comment hasn't been published)to this blog. Also, the style and content of the personal abuse is also entirely familiar, but under the "other" name. I wonder if the two are related? Anyway, the problem with "Jo's" comment is that anything that is remotely critical of Government actions = bias. The fact is that the NR saga represents three things of critical significance: 1. The problems with NR are representative of the financial crisis that has seen losses in excess of $100 billion being wiped off banks' balance sheets; 2. The Government is using untold billions of taxpayers money propping it up; and 3. How the Government responds to this crisis is a testimony to their competence - and whether that's competence or incompetence, well, only time will tell.
Poor old Dave (No. 30) is another one of these deluded fools who thinks he speak for NR shareholders. He also has no idea about Virgin and what it does, has Virgin ever done any of the things you claim?
It's a shame that none of the big four banks were intrested. that would have been ideal.
They should have carved up the branches and mortgages etcetra between themselves.
This is MAGNIFICIENT news! I'm so pleased.....
Can't stop..... must write to government to submit my overdraft and credit cards for consideration to be nationalised as well.
This is so exciting...One swoop of the pen and I too can have all my debts wiped out...isn't life wonderful!
Hat off to Mr Peston, the Rock has been nationalised at long last.
Oh dear, what a mess, just hope we can remember that NR was only supported in the first place because of the 'phantom election'. This will cost other Govt depts alot as it represents an additional £6Bn - £12Bn of public spending p.a. (depending on how you cook the books). Dozens of troops will die as a result of the Army not getting sufficient armour, Thousands will die through NHS cuts, Millions will suffer through higer taxes - Just to save a few potential voters in an election that never happened.
It is regretable that market forces were prevented from correcting the extravagace and reckless lending practices of NR.
There again many businesses who's financial model was based on borrowing cheap cash should also be feeling the pinch - I wonder how the Private Equity folk are doing ? Oh, we can't see! are they also being supported by Government or Banks?