The Wall Street Journal-20080111-Credit Crunch- U-K- Seeks Solution for Northern Rock- Options Include Nationalization- A Sale May Be Hard
Return to: The_Wall_Street_Journal-20080111
Credit Crunch: U.K. Seeks Solution for Northern Rock; Options Include Nationalization; A Sale May Be Hard
LONDON -- A private sale of Northern Rock PLC "may not be possible," but the government still hopes to recover the money that it has lent the troubled United Kingdom mortgage lender, Chancellor of the Exchequer Alistair Darling said.
"I very much want to find a private solution if I can," he told a parliament committee. He added that a sale to a private buyer may not be possible due to the "challenging" condition of financial markets. He said all options, including nationalization, are on the table.
The government has lent an estimated GBP 25 billion ($49 billion) to Northern Rock since the lender became unable to access funds via the credit markets in September and had to tap the Bank of England for emergency funding. The situation sparked the first run on a U.K. lender in more than a century.
Meanwhile, a hedge fund-led effort to give shareholders a bigger say over the future of Northern Rock is gaining ground ahead of a Tuesday vote, though lawyers say any additional rights that shareholders win will be meaningless if the government steps in to nationalize the bank.
SRM Global Master Fund and RAB Special Situations, funds of Monaco- based SRM Advisers and London's RAB Capital PLC, have put forward four resolutions for next week's extraordinary general meeting. If the proposals pass, shareholders would be able to veto any significant asset sales or purchases, new-share issues or changes to the bank's capital structure.
SRM and RAB control more than 18% of Northern Rock's shares. They have received public support from Swedish pension-fund group AP2, which owns 1.8%, and the U.K. Shareholders Association, which represents about 150,000 individual private shareholders. An estimated 25% of Northern Rock shares are held outside of institutions.
Goldman Sachs Group Inc. has been brought in to advise Northern Rock on the best way forward. Investment firm Olivant and a consortium led by Richard Branson's Virgin Group have presented offers to rescue Northern Rock, and Goldman Sachs is due to present options next week before a final decision on Northern Rock's future is made in February.
Among other options, Goldman is seeking investors in China and the Middle East to help fund an acquisition of the company, a person familiar with the matter said.
Mr. Darling vowed yesterday to find a solution for Northern Rock by mid-February, when a six-month European Union limit on state aid to private companies runs out.
The U.K.'s financial regulatory structure came under fire as the Northern Rock crisis broke, but Mr. Darling said the system is essentially sound and that any reforms must be "proportionate."
"I think the essential architecture of the system we have in this country is sound," he said.
---
Margot Patrick contributed to this article.
