- The cost of the Northern Rock crisis has reached the equivalent of £3,500 (about $7000 USD per person) for every taxpayer as experts warned that the nationalisation rescue of the bank was bound to fail. Taxpayers' exposure to the beleaguered bank has doubled since the beginning of the year and now stands at about £110 billion (about $220 B USD)
- The newly-installed chairman has been forced to admit that the bank may remain in public hands for "years" - undermining claims by Gordon Brown that the nationalisation was only temporary.
- Plans are being drawn up to lay off thousands of bank workers, reduce the savings rates of a million customers and sell branches in an attempt to persuade the European Union to sanction the biggest nationalisation in Britain's history.
- As the full scale of taxpayer liabilities became clear it emerged that more than 800,000 people with Northern Rock mortgages are now effectively in debt to the Government. There were growing concerns over the Government's ability to run the bank competitively, with senior City figures claiming that the business would end up being killed off. (governments run everything efficiently, no?)
- Northern Rock's 180,000 shareholders began preparing legal action against the Government amid fears that they will be left with virtually nothing under the nationalisation.
- Fears grew that other banks may be in trouble after the Treasury unveiled plans to allow the Government to take any financial institution into public ownership over the next year in a move described as "draconian".
- Ministers came under pressure to release the advice they received from Goldman Sachs over the future of Northern Rock after it was alleged that critical decisions were delayed in September as Mr Brown dithered over whether to call an election. (ah, our friends are everywhere aren't they? Hands in everything, the world over)
- Bank nationalisations in other countries have led to the banks being slowly wound up and closed - which can take decades. British experts believe the same could happen in the case of Northern Rock.
- Peter Spencer, the economic adviser to the Ernst & Young Item Club, said: "I think the Government is still in denial and will have to come to its senses. It cannot resurrect this business. It's commercial folly. "The entire business model is a busted flush. I think any private buyer would have found it extremely difficult to have run it, and I think it will be almost impossible for the Government to float Northern Rock as a going concern again. The more I look at this, the more I come to the view that sadly Northern Rock really cannot be resurrected and has to be run down.
- "The Government must realise the inevitability of a run-down. They are playing for time and they will run it down and it's a shame because the costs of keeping it going are going to be met by the taxpayer."
- Ron Sandler, the bank's new chairman, insisted that his plan was to restructure Northern Rock then return it to the private sector - either through a stock market flotation or a takeover bid.
- As Northern Rock's business is now entirely underwritten by the Government, European regulators are unlikely to allow it to offer market-leading savings and mortgage rates - as these would breach competition rules barring state aid. So the bank is likely to cut savings rates and increase borrowing rates, which will deter customers and trigger the company's slow demise.
- "You will never recover your reputation for competence. You are politically a dead man walking and if the Prime Minister could actually make a decision he would move you." (touche!)
But other than that, it sounds like a wonderful situation and hopefully US banks rally off of such great news ;)
As I've been saying almost nonstop since day 1 of this blog, we are in unprecedented times - at least in the modern era. I only wonder what happens when Fed funds are 2% and credit costs continue to stay high what the "next" step will be.... the drama is killing me.
Short government's ability to run just about anything efficiently
