Treasury takes advice on Northern Rock as dividend cancelled

by Gill Montia

Story link: Treasury takes advice on Northern Rock as dividend cancelled

According to reports in the press, the government has appointed Goldman Sachs, the US investment bank, to offer advice on Northern Rock.

Northern Rock’s difficulties hit the headlines on September 14th, when the Bank of England stepped in to offer emergency funding as the “lender of last resort”.

Last week, the Chancellor of the Exchequer guaranteed saver’s deposits in a move that has left the Treasury closely involved with the bank’s future; Goldman Sachs is said to be advising the Treasury on matters relating to the guarantee.

Hopes of a takeover bid have been fading, despite reassurances from Northern Rock’s chairman that less than 10% of accounts have been closed since the crisis began, and that the bank has assets well in excess of liabilities.

The major UK banks are not likely to be interested in making a bid, as refinancing Northern Rock’s mortgage book is likely to prove difficult and costly.

In addition, the current credit squeeze has left most banks using their capital for faster-growing areas than domestic mortgages.

However, it is rumoured that a group of investors headed by a Spanish entrepreneur has expressed an interested in acquiring the business.

In the absence of a firm bidder, Northern Rock is likely to consider selling off parcels of its mortgage book, or gradually winding down its business and mortgage book.

In the meantime Northern Rock has abandoned plans to pay £60 million to shareholders in dividend, following strong criticism by politicians of its plans to proceed with the payment.