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Friday 19th of June 2009
January 21, 2008

Chancellor reveals rescue plan for Northern Rock to avoid nationalisation


by Kay Murchie
”Chancellor

Chancellor Alistair Darling has unveiled details of a scheme to aid the sale of crisis-torn bank Northern Rock while avoiding nationalisation.

The Government has outlined plans to turn the £25 billion lent to Northern Rock by the Bank of England into bonds guaranteed by the government.

The bonds will be sold to private investors under the plans, drawn up by investment firm Goldman Sachs, potentially to speed up a private sale.

This would avoid nationalisation of the bank but it is not yet known if private buyers will have the funds required for the deal.

In a statement, the Treasury said this new financing structure would only be available for proposals that would protect taxpayers’ interests. This structure would ensure all Bank of England loan facilities to the company are repaid in full, with interest, upfront, as soon as the funds are raised.

The government’s proposals must be approved by the European Commission, which could reject them under competition rules.

Bidders have until 4 February to come forward with rescue proposals based on the Treasury’s plans.

Speaking in New Delhi yesterday, prime minister Gordon Brown said if a number of commercial companies are expressing interest in the future of Northern Rock then it’s right that the government explore all options available to us. Mr Brown continued we would be failing in our duty if we did not look at the commercial offers that have been made.

So far, there are 3 proposals for Northern Rock who include a consortium led by Sir Richard Branson’s Virgin Group and Olivant, run by Luqman Arnold, former Abbey chief executive. In addition, a standalone plan is being developed by the board of Northern Rock.

This weekend, Sir Richard Branson said he had a ‘winnable package’ to ensure the success of his bid for the struggling bank.

In early trading today, shares in Northern Rock increased by 29% to 83p.

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