Money News
The Government has set a February 4th deadline for a private sector rescue of beleaguered mortgage bank, Northern Rock. The news came as it announced a refinancing package that will see £25 billion of loans made to the bank converted into bonds that will then be sold to investors.
Whilst the package, as is, won't mean full scale nationalisation it will see the Government - and by extension taxpayers - tied to the bank's fortunes for years to come.
To deflect criticism that it would, in effect, be guaranteeing billions of pounds of loans while a successful bidder would reap most of the financial reward the Government has said it will insist on an 'appropriate share' in potential upside equity returns should the Rock's fortunes improve.
The financing package will be available to all would-be suitors, including already declared interested parties such as Richard Branson's Virgin Group, the Olivant consortium - led by former Abbey CEO, Luqman Arnold - and an in-house plan being drawn up by the new Northern Rock management.
The package isn't necessarily a done deal however, given it will need to comply with European Union rules on state aid for private companies.
If, after the February 4th deadline, none of the offers prove acceptable to the Government it will temporarily nationalise the bank.
Meanwhile, Virgin Group is to make an improved offer for the mortgage bank according to a report in the Sunday Times - the paper claiming it is prepared to cut its proposed stake in the bank from 54% to 45%. This would allow shareholders a bigger slice of the action in the event of a recovery by the bank.
Prime Minister Gordon Brown denied reports over the weekend that he has been having discussions with Virgin Group head Sir Richard Branson over the future of the bank - this despite Branson being part of a high powered business delegation that has been travelling through China and India with the Prime Minister.
21 January 2008 © Moneyextra.com
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