The Government is introducing emergency legislation to temporarily nationalise stricken high street bank Northern Rock. Trading in shares of the Newcastle-based bank has been also suspended.
Chancellor Alistair Darling says he has made the decision because two private takeover offers did not offer the taxpayer “sufficient value for money”.
Virgin Money, the financial services brand controlled by Richard Branson, has made a high profile bid for the bank and the Government is also considering a bid from the bank’s management team.
Darling has defended the move by saying Northern Rock will eventually be moved back into the private sector.
Ron Sandler, who previously led Lloyds of London, has been appointed to run the bank, which will be run at “arm’s length” and on a “commercial basis”.
It is the first time a bank has been nationalised and it is the first company to be nationalised since the Seventies. Shareholder groups are expected to take legal action over the Government’s move.
Northern Rock got itself into financial difficulties last year because its business model left it ill-prepared for the global credit crunch. It was forced to ask the Bank of England for emergency funding in September, which triggered the first run on a British bank in more than a century.
The beleaguered bank then launched a crisis management campaign to reassure customers that their cash was safe alongside ads touting its products (MW.co.uk, 18 September, 2007).
The move to nationalisation also throws Northern Rock’s £25m shirt sponsorship of Newcastle United Football Club into doubt.