Northern Rock guarantee widened

by Richard Kilner

Story link: Northern Rock guarantee widened

The Treasury’s wider financial commitments to stricken bank Northern Rock have been seen by many as just another step towards the bank becoming nationalised.

Now the government has guaranteed not just retail deposits, but the bank’s debts to other financial institutions, a change made at the behest of Northern Rock itself.

The government’s preferred option for Northern Rock’s future comes from the private sector, with private equity firm Olivant and Virgin Money being the last two bidders in the frame.

Since September this year the bank has racked up a debt of £25bn from the Bank of England, with a significant increase on this due to the new, extended guarantees. The government’s hope is that the bank becomes a more attractive prospect for would-be buyers.

Mike Trippitt, an analyst at Oriel Securities, is of the opinion that the Treasury is simply getting more deeply involved in Northern Rock, and has described the change as another step towards nationalisation.

However, any potential nationalisation would probably only be (relatively) brief, a means to the end of selling the firm onto the private sector. It is reported that one plan under consideration involves the bank being split up shortly after nationalisation and the various components sold on to different private firms.