The British government waded into the subprime-mortgage quagmire, saying it would move today to nationalize Northern Rock, the nation's...
LONDON — The British government waded into the subprime-mortgage quagmire, saying it would move today to nationalize Northern Rock, the nation’s fifth-largest mortgage lender.
The government rejected two private rescue plans for the ailing bank because they failed to “deliver sufficient value for money for the taxpayer,” Chancellor of the Exchequer Alistair Darling said.
The bank wrote a fifth of all new home loans in Britain last year before it fell victim to cash shortfalls stemming from the U.S. subprime crisis. It will be under temporary public ownership until it can be stabilized and resold, government officials said.
Like most British banks, Northern Rock did not have a big portion of its loan portfolio in the subprime market. It was nonetheless caught up in the turbulence because of its reliance for funding on short-term money markets, which rapidly eroded as banks lost lending confidence.
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The government has extended about $104.5 billion in loans and other guarantees to prop up the bank and was reluctant to agree to any private-sector bailout that didn’t guarantee taxpayers an early repayment with interest. Offers from Virgin Group and the bank’s current management were rejected.
The request for government aid in September triggered Britain’s first bank run in more than a century.
The move to nationalize the bank temporarily could hurt Britain’s efforts to make London the premier global capital for financial services and be politically costly to Prime Minister Gordon Brown, whose career has been staked on his stewardship of Britain’s economic boom.
Political opponents accused the government of taking too long to act, and the Conservative Party leadership signaled it would oppose the nationalization legislation when it is presented to the House of Commons today.
“Gordon Brown has dithered his way to the disaster of nationalization,” George Osborne, the Tories’ shadow chancellor.
Northern Rock shareholders have expressed fears the nationalization will decimate their stakes and are expected to sue.