I was pleased to learn today that Goldman Sachs are looking at the possibility of selling on the taxpayers loans to Northern Rock. It would be excellent news if taxpayers can get their money back. Then idea apparently is to turn the loans into bonds and seek some other institution or intermediary to grant a guarantee of repayment, then selling them on to the private sector.
There is also at last some movement away from the lunatic idea of nationalising the bank which would mean taxpayers moving from a position where we have ?57 billion at risk to a position where we would be responsible for all ?100 billion plus of Northerns liabilities. (see previous blog entries on why that would be bad news for taxpayers and shareholders alike). We learn this morning they are looking at the government acquiring a minority stake in the company, so taxpayers will get some upside from their shareholding if the rescue works well.
I would suggest there is no need for taxpayers to buy any shares at the moment in Northern Rock. Taxpayers should continue as bankers of last resort. What Ministers could demand to continue in this role is the grant of options to buy shares in the company at a future date. The taxpayers long term interest would be best protected by having the right to buy a substantial minority stake in the Northern Rock at around the current share price at any time over say the next five years. If all goes well and the companys share go up substantially, and taxpayer can then buy its shareholding, the company will get extra share capital, and taxpayer can sell on the shares in the market to make a profit. If the companys shares do not prosper the taxpayer has no share capital at risk and does not have to buy the shares. That would be less risky than buying a stake in the company today and would reward taxpayers if our lending to the company enables it to recover well..