Chancellor must make a statement on Northern Rock funding

The Chancellor has to be careful not to create a false market in Northern Rock shares.

The amount and duration of government lending to the mortgage bank is fundamental to valuing the shares. If this funding is to be there for as long as Northern Rock wants, the company will have one value. If the funding is to be phased down it has another value. If it is to disappear rapidly it has yet another value. In circumstances where the funding is withdrawn quickly the value of the bank then rests on what private sector funding is available at what terms. The differences between these values will be large.

In such circumstances it is vital to avoid a disorderly market in the shares that the government makes a statement tomorrow saying:

1. How much money has been lent to Northerhn Rock so far via the Bank of England?
2. How much more might be lent under the guarantees in place?
3. What time limit if any there is on this arrangement?
4. What if any agreement is there over repayment schedules?
5. Is this funding available to any buyer of Northern Rock, or only to the independent company that first asked for assistance?
6. If funding is available to a buyer of Northern Rock, what will be the requirements concerning repayment by them?

The markets need this information so people can value the shares sensibly. Parliament needs it so we can do our job protecting the taxpayers’ interests. I fear a false market in the shares unless we are told what the government’s position is on these and related matters.

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2 Comments

  1. Anoneumouse
    Posted November 18, 2007 at 8:29 pm | Permalink

    The chancellor only has 6 months to sort this, as it will raise the possibility that the UK government may have to justify its support for Northern Rock to the European Commission under rules governing state aid

    Reference:

  2. Bazman
    Posted November 18, 2007 at 11:16 pm | Permalink

    I predict a few people are going to make a lot of money out of this Northern Rock fiasco.
    Knighthhoods and trebles all round. Hold me to it!
    This is why so many people where trying to get their money out. We have seen it all before. The game is up!

One Trackback

  • By The Northern Rot sets in « Lightwater on November 19, 2007 at 9:38 pm

    […] Ah well, I’ll have to settle for these two commentators. But what I want to know is, and in these I’m in full agreement with John Redwood, HERE. […]

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    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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