Northern Rock rescue plans
Updated on 14 January 2008
Who will rescue the ailing mortgage lender whose stock continues to plummet?
One of the bidders for Northern Rock has told this programme that nationalisation is now the government's "Plan A" for the future of the bank.
On the eve of an extraordinary meeting of shareholders, the Chancellor Alistair Darling has reiterated his preference for finding a private buyer.
Though a contingency management team including former Treasury adviser Ron Sandler, is primed to head a nationalised Rock the Treasury tonight said there's been no change in its position of preferring a private sector solution.
But the vultures are already circling in case these plans don't happen. Today the Conservative leader David Cameron said nationalisation would be "a massive failure for the Government" and the Liberal Democrats accused the government of letting the company "bleed to death".
Meanwhile investment bank Goldman Sachs has drawn up plans to raise funding, including dividing up Northern Rock's debt into bonds, which could be guaranteed by the government and sold to investors.
Indeed what's happening at the London headquarters of Goldman Sachs may leave tomorrow's meeting as a bit of a sideshow. The Treasury is awaiting a detailed report from bankers here that may act as a pretext to a decision on nationalisation.
On the eve of an extraordinary meeting of shareholders, the Chancellor Alistair Darling has reiterated his preference for finding a private buyer.
Another plan could involve an internal rescue bid from the firm's current managers, drastically cutting the size of the business. This would see almost half of its estimated £100 billion mortgage book sold off to help pay off the Bank of England debt, with the government possibly taking an equity stake in the business.
As the value of the banks shares have collapsed, hedge funds have continued to invest. The largest shareholder, Monaco-based SRM Global, increased its stake at the end of December: RAB Capital picked up a quarter of a million more shares just last week. Between them RAB Capital and SRM Global own 17 per cent of the company.
Voting has already begun in what has been billed as the biggest shareholder punch-up in corporate Britain for over a decade. It's all about who sets the agenda at Rock HQ in Newcastle. Board members may be voted off, and powers restrained.
Its setting the government's desire to protect billions of pounds of taxpayer backing, against the rights of thousands of shareholders who fear having their investments wiped out, after a warning last week by the Chancellor.
Many of the voting shareholders are former mortgage holders who benefited from mutualisation of this former building society. But the opposition to the board is being marshalled by the two so-called hedge funds known for making huge returns from activism. They are seeking to change the strategy of companies they own stakes in.
The problem is that important elements of the credit storm have lifted. Yet despite this, there's no bank wanting to take the multi billion pound baton from the Treasury. That pessimism has now reached the prospective bidders.
