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Rock rescue puts £3bn taxpayers' cash at risk
Nicholas Cecil and Jonathan Prynn05.08.08
Up to £3.4billion of taxpayers' cash is being put at "great risk" as the huge loan is being converted into equity for Northern Rock, MPs warned today.
Chancellor Alistair Darling admitted the Government was prepared to pump a further £3billion into the crisishit bank, which today reported biggerthanexpected losses of £585.4 million for the first six months of the year.
The Treasury acted to shore up the nationalised bank which Mr Darling said, like other lenders, found itself in a "very difficult situation".
"It doesn't have shareholders now that... it's owned by the Government, so it's got to come to us, so we will put in up to £ 3billion," he added. "We've got to get state aid approval so we can't give a precise figure, but up to £3billion may be necessary."
But Liberal Democrat Treasury spokesman Vince Cable, a former chief economist for Shell, accused him of misleading Parliament over the use of public funds and warned that the Government could struggle to get the £ 3billion back if the Northern Rock fiasco gets worse.
He said: "Alistair Darling assured Parliament that taxpayer loans to Northern Rock would be fully secured on mortgage assets.
"This is clearly not true - £3.4billion of the Government's loan to Northern Rock is now being converted into ' ordinary shares', which rank right at the bottom for repayment.
"Continuing losses at the bank put this money at great risk. Other banks have taken the cream of Northern Rock's mortgages, leaving the rest to curdle.
"The Government should now go after the former directors who have managed to shift the bank's losses on to the taxpayer.
"These shocking figures show Northern Rock has £6.3 billion in unsecured loans. It was clear even [in October] that they could never be repaid in a falling housing market."
A Treasury spokesman said: "As the Chancellor said this morning, it was important to intervene in Northern Rock to ensure financial stability, and to protect taxpayers and depositors."
He denied Mr Darling had misled Parliament and added: "Like other banks, Northern Rock has been affected by problems in global financial markets and requires more capital in order to meet its statutory capital obligations.
"The Government as shareholder has provided the capital required."
But shadow Treasury minister Philip Hammond said: "This is the predictable consequence of nationalising a mortgage bank at the height of the housing boom. Now the taxpayer is being forced to hand over yet more money in order to keep this bank afloat."
The bank said its huge losses were largely down to a dramatic increase in customers being unable to keep up their payments. The number of homes it has repossessed rose by almost half in the first six months of the year from 2,215 to 3,170.
