Gloom and uncertainty surrounds Northern Rock

Northern Rock’s shares plummeted to 104.2p yesterday after the chancellor Alistair Darling said that he was keen to protect taxpayers’ money, but shareholders were not mentioned and left out in the cold.

Furthermore, there is talk that the Government faces years of supporting the crisis-torn bank as finding a suitable buyer is looking unlikely. Last Friday was the deadline for potential bidders with a reported 10 buyers submitting proposals.

Those expressing an interest in Northern Rock include private-equity groups, JC Flowers, Cerberus, Blackstone and Apollo. A consortium led by Virgin boss, Richard Branson, has also joined a growing list of those expressing an interest in the bank.
Furthermore, Luqman Arnold, the City stalwart and former Abbey chief executive, launched a proposal to rescue Northern Rock just last week.

Chief executive, Adam Applegarth, resigned on Friday, critics said he took too many risks with sub-prime mortgages and did not act accordingly to protect the bank from volatile world markets.

Shareholders have a large stake in the company and will therefore have a strong influence in deciding its future. The bank’s biggest shareholders are RAB Capital and SRM Global and are advocating that it not be sold or broken up, but that the Bank of England should continue to offer it support. However, many are anxious that continued help from the Government will result in taxpayers footing the bill.

However, it is rumoured that the Government is favouring the proposal from Luqman Arnold in order to keep the bank as a solid entity which would protect taxpayers, savers and the financial system.

Other alternatives for Northern Rock’s fate is going into receivership, selling all or part of the bank or nationalising it.

Discuss this in the Finance Markets forums

Story link: Gloom and uncertainty surrounds Northern Rock