Virgin on the Rock

Today we hear Richard Branson has become the preferred bidder for Northern Rock. It is good news that there is some movement, and there could be an outcome which keeps some of the Northern Rock staff trading with a new owner and looking after the customers and loans.

The scheme outlined on the radio implies the Bank of England and the Treasury did not take proper security for all the loans they advanced. It is high time Mr Darling explained the true position about this, and if they failed to take sufficient security for all the lending to explain why they made such an extraordinary decision.

According to the briefings so far, the taxpayer will get around half the money back immediately, and the other half back over a 2-3 year period. In the meantime the taxpayer will get similar security to other creditors. Presumably it also means no more government lending to Northern Rock, compared to the current position where the taxpayer is on the hook to lend more all the time there are deposit withdrawals. That would be a welcome development.

That may be a good outcome. To be able to judge it, the taxpayers’ representatives need to know how bad our starting position is. What, if anything, has been promised on repayment dates for the current loans? How many of them are secured on specific assets, which is better than a floating charge assuming they are secured on good assets in sufficient quantities? I have asked all these questions, but the taxpayer is still in the dark about how much money has been committed and on what basis.

Mr. Darling has made it impossible for the market to value the shares, as the market does not know the basics about how much money for how long is available to the company. If he is to persaude us all that he now will do a good deal for the taxpayer and for the UK fianncial system – his two legitimate aims – he needs to tell us more about the current position. The BBC this morning themselves asserted that there is a false market in the shares. The reason must be the lack of government transparency. That is unacceptable, after the Chancellor’s lecture to bankers that they needed to be more transparent!

I do hope Mr cable is getting ready with his apology for his irresponsible behaviour, if there is a successful rescue bid for Northern Rock. He has been so keen to attack Northern Rock and all involved with the company, making a rescue that more difficult.

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4 Comments

  1. Nick
    Posted November 26, 2007 at 10:46 am | Permalink

    Go back a few days.

    QinetiQ

    The National Audit Office believes greater proceeds could have been secured from the 2003 sale to Carlyle, although the MoD disagrees with this. Carlyle were appointed as the preferred bidder in September 2003 despite price sensitive issues still being outstanding. This turned a competitive process into one of negotiation.
    http://www.nao.org.uk/pn/07-08/070852.htm

    ie. The government anounces a preferred buyer. They use this to squeeze out the others, the end result is the terms the government ends up with are worse.

    So in the space of a couple of days, the government carries on doing what it always does, waste tax payers money.

  2. Derek
    Posted November 26, 2007 at 11:25 am | Permalink

    I suspect they have no clue what the financial position at NR is or how well their massive loan is secured. They've been bounced along by events since this started and have been forced to deal with the issue after media claims the uncertainty is damaging the Brown premiership. It is not possible to ascertain at present how much debt may be financed through the markets in future and the government should have waited. They've only picked Branson because they believe him to be the one with the most to lose if he shortchanges taxpayers. They can't afford a repeat of Rover.

    Hopefully it'll be the crowning glory on a prodigious entrepreneurial career, but I worry it could so easily end in disaster, beware of Greeks bearing gifts, they never previously showed any interest in giving him the lottery. The media suggests its all about mortgages on private housing. However, I know from personal experience that NR were providing commercial financing based on some very toppy valuations. Fortune favours the brave, but caveat emptor, Richard.

  3. Nick
    Posted November 26, 2007 at 12:22 pm | Permalink

    If he gave his employees the cash, did they pay tax on it?

    Reply: This is an extermely good point. If we are now allowed to give our employees money tax free it could be very popular!

  4. Trains are for the r
    Posted November 27, 2007 at 7:36 pm | Permalink

    I posted the Virginb/Rock story on my blog on Monday Nov 19th due to this article on Reuters: http://www.reuters.com/article/reutersEdge/idUSHO
    I find that Reuters is quite good for news of all kinds and hope the link is useful to you Mr Redwood.

  • About John Redwood


    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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