Osborne: the Rock will be re-privatised
Mansion House
CHANCELLOR George Osborne last night announced that Northern Rock – the first casualty of the financial crisis – will be re-privatised.
Treasury sources said they hoped the auction, which is expected to raise around £1bn for the exchequer, would be completed before the end of the year.
The chancellor, who made the announcement in his annual Mansion House speech, is keen to use the sale to help create a new “challenger” bank that could boost competition.
That suggests the big four – HSBC, Barclays, Santander and Lloyds – are unlikely to end up buying the bank.
He said: “Images of the queues outside Northern Rock branches were a symbol of all that went wrong, and its chaotic collapse did great damage to Britain’s international reputation.
“Its return now to the private sector would help to rebuild that reputation.”
Sources said the chancellor had decided to reject calls for Northern Rock to be mutualised or turned into a building society after advisers said an auction would raise considerably more for the exchequer.
Deutsche Bank, which is advising UK Financial Investments – the body that manages the taxpayer’s stake in banks – said the government could earn twice as much by auctioning Northern Rock off as opposed to mutualising it.
“Mutualisation would be virtually giving it away,” an aide to Osborne said.
However, Treasury sources suggested that Northern Rock could still become a mutual in essence if it were sold to a building society such as Coventry or Yorkshire, which is said to be interested.
Osborne said: “Any interested parties can bid for it, including mutuals, which this government is actively committed to promoting.”
On the block is a bank with around 70 branches, retail deposits of £16.7bn and mortgage loans worth £12.2bn.
The so-called “bad bank” – with £44bn of mortgages made by the Rock before it was taken over by the government – will remain under state-ownership, however.
Although the re-privatisation of Northern Rock will mark a symbolic moment in the government’s attempt to return its banking stakes to private ownership, Osborne acknowledge that it was just the tip of the iceberg.
He said: “Our direct shareholdings in banks still remain. It will take some time – possibly several years – before we can sell them all. But we can start that process.”