Northern Rock guarantee extended

by Gill Montia

Story link: Northern Rock guarantee extended

The Treasury is extending its guarantee to Northern Rock savers in efforts to stabilise the bank.

Arrangements previously announced to protect existing depositors are being extended to all new retail deposits made after September 19th, including those made from today (October 9th).

The bank is hopeful that the new measures will allow it to pursue the full range of its strategic options, which include being taken over, broken up, or remaining independent.

The new arrangements will be reassuring to prospective buyers and could ease the fears of shareholders and bondholders who are wary of the bank being sold off too cheaply.

However, some analysts have criticised the Treasury’s decision to guarantee new retail deposits because it could give Northern Rock an advantage over its competitors.

To offset this the bank will be paying a fee, which will take the form of non-recurring costs of between £40 million and £50 million.

A figure in this regoin would represent around 10% of the bank’s targeted profit for 2007.