The nationalisation of Northern Rock will earn the same condemnations as that of Railtrack in 2001. Alan Shipman reports.
Shareholders will complain that a Labour government deliberately let financial markets turn against the company, until it could be bought for a derisory amount compared with its underlying asset value. The EU will watch for any public money being pumped into an operation which ministers insist is still solvent.
But whereas turning round Network Rail in the public sector has required a rise in user charges that draws protest from customers (the train franchises and their passengers), the Rock’s rescue will be a further relief to its customers, and key to attracting the depositors it needs now the securitisation vehicle is off the road. Indeed, the main complaints are likely to come from other banks, worried that the Rock can set unbeatable deposit rates with the Treasury coffers behind it.
Such protests are hard to justify, in a banking world where liquidity problems have blurred the public/private border all round. Among the best deposit rates on offer now are from Icelandic banks whose government is preparing to support their massive foreign bond obligations. Those offered by Barclays, Citigroup and Morgan Stanley are made possible only by the state-owned funds that have shored up their capital bases. NR may be owned by a government, but at least it’s a highly accountable EU government. One of whose accounting transparency the Chancellor will be painfully aware as he writes the Rock’s twelve-figure borrowing requirement into next month’s budget speech.
Alan Shipman is editor of AccountingWEB's sister title, Finance Week.