Brown grilled over northern rock

LONDON (Reuters) - Prime Minister Gordon Brown faced a political and public backlash on Monday after his decision to take ailing bank Northern Rock into public ownership, the first UK nationalisation since the 1970s.

The government will announce new legislation allowing it to take over Britain’s fifth-largest mortgage lender after rejecting two private sector-led bids on Sunday and ending five months of uncertainty over Northern Rock’s fate.

Even temporary nationalisation, however, will carry political and financial risks for a government already tarnished by the debacle, as it links its fate to a mortgage bank at a turbulent time for Britain’s housing market, with home repossessions, bad loans and job cuts all set to rise.

It is also facing the threat of a drawn-out legal battle with shareholders, who stand to lose most or all of their investment.

Northern Rock has borrowed about 25 billion pounds from the Bank of England since the global credit crisis last year wrecked its funding model, sparking the first run on deposits at a British bank for some 140 years.

With a national election due by May 2010 at the latest, turmoil over the past five months has dented both the Labour government’s popularity and the prime minister’s reputation as a guardian of financial stability.

Shareholders reacted with anger as the suspension of Northern Rock shares left them unable to sell their stock.
——————————————————————

Northern Rock nationalised

Northern Rock is to be nationalised as a temporary measure.Neither of the two private proposals to take over the beleaguered bank offered “sufficient value for money to the taxpayer”, Mr Darling said.

He said the public would gain if the government held on to Northern Rock until market conditions improved.

Ron Sandler, nominated by the government to run Northern Rock, said savers’ deposits would be secure.

deadline for northern rock bids

Virgin Group and up to two other bidders are expected to meet a Monday deadline for Northern Rock offers. Sir Richard has already confirmed that Virgin aims to meet the deadline, and is said to be the frontrunner.Northern Rock got itself into financial difficulties because its business model left it ill-prepared for the global credit crunch.

Unlike the great majority of UK banks, Northern Rock relied upon borrowing funds from the wholesale money markets to fund its mortgage business, rather than the usual method of using savers’ deposits.