Northern Rock: Press Release
HM Treasury (National) -(HMT) Northern Rock
HM Treasury, on behalf of the Tripartite Authorities, today announces a new financing structure that could be made available to Northern Rock and other interested parties, for a possible private sector solution for the entire company. This new financing structure would only be available for proposals that would protect taxpayers’ interests, as well as meeting the Tripartite Authorities’ other stated objectives of financial stability and the protection of consumers. If no proposal is received which meets these objectives, the Government would bring forward legislation in order to facilitate temporary public ownership of Northern Rock.
In any event, the existing Government guarantee arrangements remain in place. Savers’ money continues to be safe and secure.
The proposed financing structure envisages Northern Rock raising funds from investors in the financial markets backed by a mixed pool of assets. This structure would ensure all Bank of England loan facilities to the company are repaid in full, with interest, upfront, as soon as the funds are raised. To facilitate this, the Treasury would put in place a guarantee for the payment of investors in the event that the assets were insufficient to fulfil the obligations, although any losses to the asset pool would first be borne by Northern Rock to protect the taxpayer. Northern Rock would pay a fee for this guarantee in addition to the fees for the existing guarantee arrangements which will continue.
The Tripartite Authorities consider that this would reflect their stated objectives, as a proposal using this structure would have the potential to:
– ensure the Bank of England’s loan facilities to the company are repaid in full, with interest, upfront as soon as the funds are raised;
– contribute to finding a cost-effective solution under private sector ownership with the private sector at first risk for Northern Rock’s commercial success or failure;
– involve significant private sector participation, including new private sector capital, in the financing of Northern Rock; and
– provide the Treasury with the ability to share in the potential upside returns for private sector participants in return for the financial support being provided to the company.
Proposals would need to demonstrate compliance with a range of conditions, including a robust business plan, commitment of sufficient additional capital and management and ownership by suitable persons, appropriate for the provision of financial support of the kind contemplated. There would also be clear restrictions on the sale of the company and on dividend payments whilst the taxpayer remains at any risk. The proposals will also have to be consistent with the regulatory requirements of the FSA.
HM Treasury and the Bank of England, as providers of financial support to the company, and the Financial Services Authority, as its regulator, will consider proposals received by 4 February from Northern Rock and other interested parties.
The Tripartite Authorities recognise that any proposal relying on this financing structure is likely to involve state aid, which would require approval by the European Commission, and will submit a restructuring plan to the Commission by 17 March. HM Treasury and the Bank of England will make arrangements for the existing Bank of England loan facilities to be extended up to this date to allow time to explore the financing structure with Northern Rock and other interested parties.
In the event of temporary public ownership, the company would be managed at arms’ length on a commercial basis. An experienced and professional management team would be appointed. Services for savers and borrowers would not be affected and the company would continue to operate and provide services to customers as normal. Branches, call centres, postal and internet banking would all continue to be open and accessible, as usual.
Any decision or announcement to take Northern Rock into temporary public ownership would also address the future of the Northern Rock Foundation.
Posted: 21st, January 2008 | In: Money Comments (3) | TrackBack | Permalink
