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Pressure mounts for solution to Rock crisis
Nick Goodway, Evening Standard5 Feb 2008
Chancellor Alistair Darling was today under growing pressure to decide rapidly on the fate of Northern Rock as the crisis-torn bank's share price plunged 7½p to 80½p.
Senior City sources said that, with just two commercial rescue plans left on the table, the Treasury had little reason to delay choosing one of them, or nationalisation. Last night's unexpected withdrawal of the bid by Luqman Arnold's Olivant is a major blow to the Chancellor. Arnold argued he could not earn a decent return for his backers in three years rather than the five years Goldman Sachs had suggested.
It leaves Darling with just Sir Richard Branson's plan to create Virgin Bank out of the chaos or to allow what is largely existing management to run a much-shrunken Rock.
The two largest shareholders, RAB Capital and SRM Global, which hold 18% between them, today said they preferred the management plan over the Virgin one, which would see their shareholdings massively diluted.
But other investors questioned what the management under chairman Sir Bryan Sanderson can hope to achieve for shareholders. One asked: "What more would it be than a 'zombie' bank effectively being run down?"
The Treasury has yet to disclose a timetable for picking its preferred bidder. It had hoped to announce this by next Monday. But there is some suggestion that Darling could go back to Olivant's Arnold, asking him to re-enter the bidding on better terms. That would automatically extend the deadline, but would also be a huge embarrassment to the Government.
The ultimate deadline for a solution is 17 March, by when the Treasury must get clearance from the European Union that the taxpayers' bailout of Northern Rock does not count as illegal state aid.
The two bidders for the bank also face a growing problem with employees and pensioners. Both admit they will be forced to cut some of the 6500 posts Northern Rock has left unchanged since the shock run on the bank in September. Unions will fight any compulsory redundancies and the Government will not want to see huge job losses in Rock's North-East heartland.
At the same time, the board has not agreed with trustees on how to address a growing £100 million black hole in the pension fund.
Rock is under pressure from shareholders to publish its 2007 results. These were released on 24 January last year but Rock has yet to set a date this time.
Who's who on the bank racecard
Virgin Consortium
Chaired by Sir Brian Pitman with Virgin Money's Jayne-Anne Gadhia as chief executive. Would inject £500 million from investment funds and raise £500 million through a 25p-a-share rights issue. Virgin Money would put £250 million into Northern Rock, which would be renamed Virgin Bank. Shareholders dislike it because the consortium would hold 55% of the bank.
Current management
Paul Thompson, ex-boss of insurer Resolution, would be chief executive with current chief Andy Kuipers his deputy. Would raise at least £500 million through a rights issue, cut mortgage book and only fund new lending from retail savings. Northern Rock brand would remain.
Nationalisation
Former NatWest chief Ron Sandler would run the bank during what Alistair Darling calls "temporary public ownership". The most politically difficult option is the least popular among shareholders, who could end with nothing.
Olivant
Abbey ex-boss Luqman Arnold concluded late yesterday that he needed five years, rather than the three years the Goldman Sachs plan envisages, to make money for his unnamed backers. Olivant had planned to raise up to £1.4 billion from existing shareholders and take a small minority stake itself.
