Government plans Northern Rock break-up

by Gill Montia

Story link: Government plans Northern Rock break-up

While the bidding process for Northern Rock continues, press reports speak of secret plans being drawn up by the Treasury to divide it up between UK High Street banks, should there be a need for a hasty nationalisation of the mortgage bank.

The plans are apparently aimed at allowing the Government to minimise its role in the event of nationalisation, while at the same time reducing the potential cost to the taxpayer and preventing any distortion taking place in the mortgage market.

Northern Rock is the UK’s fifth-largest mortgage lender and if it were to be state controlled, the impact on the mortgage market is difficult to predict.

The Treasury has already made the point that the state does not have the expertise to run a bank and if Northern Rock were to be added to the nation’s balance sheet, public debt would increase above 40% of gross domestic product, breaking through a fiscal threshold imposed by Prime Minister Gordon Brown, when he was Chancellor of the Exchequer.

Any banks involved in a post-nationalisation break-up plan are likely to demand reassurance that they would not suffer financial loss.

Goldman Sachs, the investment bank, is advising the Government on Northern Rock which has borrowed around £25 billion from the Bank of England since September, when it could no longer fund its fast-growing mortgage business.