Brown defends nationalisation of troubled bank
Wednesday, 20 February 2008
LONDON, Feb 19 (AFP): British Prime Minister Gordon Brown defended yesterday his decision to nationalise troubled lender Northern Rock in the face of fierce criticism and questions over his reputation for economic competence.
After the first British nationalisation since the 1970s was announced Sunday, Brown said the government plans to return the bank to the private sector "as soon as possible."
But pressure mounted on finance minister Alistair Darling as the main opposition Conservative Party called on him to be sacked for his role.
Shares in Northern Rock were suspended Monday as the group, which has been devastated by the squeeze on global credit, said it would enter temporary public ownership in the coming days.
"When adverse market conditions improve, we will sell it back into the private sector ... We want to get the bank into private ownership as soon as possible," Brown told a press conference.
The prime minister said Northern Rock, which triggered the first run on a British bank in over a century last September, would be run as an independent organisation at arms-length from government.
The decision to reject two private sector bids for the mortgage lender was in the best interests of British taxpayers, he said.
Savings had been guaranteed and uncertainty prevented from spreading into the wider financial sector but the bank was affected by unforeseen global economic turbulence and its bad business model, he added.
"We took the right decision at the right time for the right reasons."
Reaction to the decision has been largely unfavourable, with political parties and media accusing the government of delaying too long in trying to find a private sector buyer.
Northern Rock was forced to apply for emergency Bank of England loans in September, when the global credit crunch-a result of the US subprime housing crisis-meant it could no longer easily raise funds for its business.
It has since borrowed an estimated 26 billion pounds (34.7 billion euros, 50.9 billion dollars) from the British central bank, although media reports have put the actual liability to taxpayers at 55 billion pounds or higher.
Ron Sandler, the government-appointed chief of the nationalised bank, told a press conference in Newcastle, northeast England, that it would likely be "some years" before those loans were repaid in full.
"I do think it's clearly unrealistic to be talking about months-we are clearly talking about a period of some years," he said.
Northern Rock dominated Brown's latest monthly news conference, which was also attended by Darling.
Darling-who has a mortgage with Northern Rock-also defended the decision in parliament Monday afternoon as he introduced emergency legislation to take the bank into public hands.
In response, the opposition Conservatives said Darling now lacked credibility because of his handling of the affair and opposition to his tax policies, with Conservative finance spokesman George Osbourne describing Darling as "politically, a dead man walking."
Meanwhile, the government is facing potential legal action from shareholders over the move because of concern at the amount of compensation they will receive after trading was halted.
The shares were frozen at 90 pence, giving Northern Rock a stock market capitalisation of about 379 million pounds. In contrast, at the same stage of 2007, the bank was worth around 5.3 billion pounds.
Brown rejected suggestions from the media and opposition that his governing Labour Party was losing public confidence over the economy but said it was impossible to predict how long Northern Rock would remain in public hands.
Both he and Darling said it was possible for the bank to make a profit while former Lloyd's of London chief executive Sandler, now Northern Rock's government-appointed head, said nationalisation offered the bank a lifeline.
"It gives the bank a period of stability and a chance to pull back from some of the forces that have buffetted it in previous months," Sandler said.
After the first British nationalisation since the 1970s was announced Sunday, Brown said the government plans to return the bank to the private sector "as soon as possible."
But pressure mounted on finance minister Alistair Darling as the main opposition Conservative Party called on him to be sacked for his role.
Shares in Northern Rock were suspended Monday as the group, which has been devastated by the squeeze on global credit, said it would enter temporary public ownership in the coming days.
"When adverse market conditions improve, we will sell it back into the private sector ... We want to get the bank into private ownership as soon as possible," Brown told a press conference.
The prime minister said Northern Rock, which triggered the first run on a British bank in over a century last September, would be run as an independent organisation at arms-length from government.
The decision to reject two private sector bids for the mortgage lender was in the best interests of British taxpayers, he said.
Savings had been guaranteed and uncertainty prevented from spreading into the wider financial sector but the bank was affected by unforeseen global economic turbulence and its bad business model, he added.
"We took the right decision at the right time for the right reasons."
Reaction to the decision has been largely unfavourable, with political parties and media accusing the government of delaying too long in trying to find a private sector buyer.
Northern Rock was forced to apply for emergency Bank of England loans in September, when the global credit crunch-a result of the US subprime housing crisis-meant it could no longer easily raise funds for its business.
It has since borrowed an estimated 26 billion pounds (34.7 billion euros, 50.9 billion dollars) from the British central bank, although media reports have put the actual liability to taxpayers at 55 billion pounds or higher.
Ron Sandler, the government-appointed chief of the nationalised bank, told a press conference in Newcastle, northeast England, that it would likely be "some years" before those loans were repaid in full.
"I do think it's clearly unrealistic to be talking about months-we are clearly talking about a period of some years," he said.
Northern Rock dominated Brown's latest monthly news conference, which was also attended by Darling.
Darling-who has a mortgage with Northern Rock-also defended the decision in parliament Monday afternoon as he introduced emergency legislation to take the bank into public hands.
In response, the opposition Conservatives said Darling now lacked credibility because of his handling of the affair and opposition to his tax policies, with Conservative finance spokesman George Osbourne describing Darling as "politically, a dead man walking."
Meanwhile, the government is facing potential legal action from shareholders over the move because of concern at the amount of compensation they will receive after trading was halted.
The shares were frozen at 90 pence, giving Northern Rock a stock market capitalisation of about 379 million pounds. In contrast, at the same stage of 2007, the bank was worth around 5.3 billion pounds.
Brown rejected suggestions from the media and opposition that his governing Labour Party was losing public confidence over the economy but said it was impossible to predict how long Northern Rock would remain in public hands.
Both he and Darling said it was possible for the bank to make a profit while former Lloyd's of London chief executive Sandler, now Northern Rock's government-appointed head, said nationalisation offered the bank a lifeline.
"It gives the bank a period of stability and a chance to pull back from some of the forces that have buffetted it in previous months," Sandler said.