LONDON (AP) — U.K. Treasury chief Alistair Darling outlined a plan Monday for ailing mortgage lender Northern Rock to issue government-guaranteed bonds to repay the tens of billions in emergency loans it received from the Bank of England.Darling said the proposal, aimed at sweetening a deal for bidders - which include Richard Branson’s Virgin Group - would need current central bank loans to be extended until March 17.The government’s financial advisers believe that there is no chance of achieving a private-sector deal backed entirely with private finance in the near future, Darling said.He also told the House of Commons that nationalization of Northern Rock remains an option if a deal cannot be struck with a private-sector bidder.A temporary period of public ownership will be necessary if a deal cannot be agreed with Northern Rock’s preferred bidder Virgin, investment group Olivant Advisors or any new bidder, he said.Darling’s move significantly reduces the amount of capital prospective bidders would need to raise to take over the troubled mortgage lender because they will no longer face an obligation to pay back more than $49 billion to the central bank.
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The bonds - backed by mortgages, securities and consumer loans - will be issued to raise money to pay back the Bank of England, the Treasury said in a statement issued Monday.Darling’s proposed financing structure will make it easier for bidders to arrange funding to take over Northern Rock under difficult credit conditions.In a statement, Northern Rock’s board said it welcomed the Treasury’s announcement, saying a private sector solution was preferable and in shareholders’ best interests.Northern Rock shares rose 36.8 percent on the London Stock Exchange mid-afternoon on Monday to $1.72.Branson said Monday he would examine the details of the package over the next couple of weeks. Superficially, we are very happy, he said in New Delhi, where he is part of a business delegation traveling with Prime Minister Gordon Brown on a trip to China and India.
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In a joint news conference Monday with Indian Prime Minister Manmohan Singh, Brown defended the government’s decision to bail out the bank.It was right - and I believe everybody agreed - that the government intervened to protect the depositors and their savings and at the same time ensure the stability of the economy, he said.Northern Rock ran into trouble in September because of its heavy reliance on short-term money markets for funding. Its subsequent profit warning and appeal to the Bank of England for an emergency loan led to the first run on a British bank since 1866.
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