Northern Rock bidders bound by Government Warrant
by Gill Montia
The Government has told bidders for Northern Rock that they will have to accept a “performance warrant” that will allow the state to share in any financial recovery of the mortgage bank.
Three bidders are submitting rescue plans to the Treasury today: Olivant, the investment firm headed by Luqman Arnold; a consortium headed Virgin Group; and an internal rescue group headed by the bank’s current managers.
The warrant can be converted into shares at a future date and is aimed at safeguarding the Government from a situation in which a successful bidder makes large profits at the public’s expense.
Potential owners of Northern Rock now face a number of restrictions, most of which are aimed at ensuring that a sale complies with EU regulations and that the bank does not have an unfair commercial advantage.
They could result in retail deposits being capped for the first three years of new ownership and will prevent Northern Rock using wholesale markets to raise more capital, while it retains a £28 billion government guaranteed bond.
Some analysts believe the restrictions will require a cost-based review that could lead to substantial job losses.
Despite the continuation of the bidding process, nationalisation still remains an option for Northern Rock.
The Chancellor of the Exchequer, Alistair Darling, has made it clear that his priority is to save Northern Rock and that if necessary, this will be done at the expense of shareholders.
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