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Northern Rock: memories of Rolls Royce
The clean solution may be to wind Northern Rock down and sell off its assets, says Richard Ehrman
Despite the recriminations this morning over the nationalisation of Northern Rock, the Government has actually taken the right decision, albeit very belatedly. The intriguing question is what changed Gordon Brown's mind? Until recently, his aversion to taking the stricken bank into public ownership could hardly have been more obvious.
The Chancellor, Alistair Darling, stressed in his statement that he was acting on advice that nationalisation offered the best deal for the taxpayer. Maybe, but the politics of rescuing Northern Rock changed dramatically two weeks ago when the Office of National Statistics unexpectedly classified it as already being in the public sector.
With the billions of pounds of taxpayers' support it has received firmly on the Government's books, a deal with Virgin or any other suitor that would inevitably have left the taxpayer with the liabilities and risks of rescuing the Rock, while privatising the profit, seemed much less attractive politically.
Not that nationalisation will be simple. For one thing the shareholders will have to be dealt with. Without the Government's bail-out in September their company would be bust and their holdings worthless. However, faced with embarrassing litigation in the run-up to the next election Labour may well opt to buy them off with yet more taxpayers' millions.
Then there is the question of what to do with the Rock itself. Darling spoke of running it as a commercial concern prior to selling it off. But allowing a state-funded lender to compete with normal banks could just prolong the agony all round. The last emergency nationalisation was Rolls Royce in 1971, and it took 16 years to get most of that back into private ownership.
A cleaner solution would be to wind Northern Rock down, sell off its assets (which still seem sound) when conditions allow, and get the taxpayers' money back that way. ·
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Nationalisation is not a party point. Labour and the Tories have both done it repeatedly, and it is the Tories whose record in this regard is more uniformly successful. Admittedly, they have used the device much less frequently. But their nationalisation of electricity was a great success, and their nationalisation of Rolls Royce was a triumph in the long term.
However, if the money can now be found to nationalise Northern Rock, then it should be found to renationalise the railways (which only make a profit at all because of guaranteed public subsidies - give that a moment to sink in) and the rip-off utilities. But I hope that the Government will turn Northern Rock back into the locally rooted mutual building society that it used to be in happier times.
The bank was in mutual ownership. Then a public listed company. Now in public ownership saved from collapse after the failure of its management. No other bank wanted it apart from Branson and also the in house management. Is the same in house management which took the bank to near ruin? I am sure Branson was even going to charge the bank for use of its name, must be a heavy charge. the new bank could end up as another Rover which was fleeced by the Phoenix 4 and sold to the Chinese having made for themselves a huge profit.
The City always complain about a nanny state and yet complain when they are not bailed out when in trouble. Which will be the next bank, all in a mess because of their management? At least with this set-up the institution is safe and with a possibility of success.