“Who is to blame for the mess in the first place?”
A good question to start. Primarily the board of Northern Rock is to blame. However, there is an institution called the Financial Services Authority which oversees financial institutions and is supposed to make sure they don't do anything daft - that is, reckless and irresponsible. The FSA did not lift a finger when Northern Rock grew massively over a few years through mostly mortgage lending. The responsibility for NR's huge growth spurt rests with Adam Applegarth, the (former) Chief Executive. Finally, the investors in NR are responsible in some small way, too. Although the loan from the Bank of England caused the panic, the investors themselves must shoulder some blame. Had they not shown a lemming mentality and dashed to the Bank to retrieve their cash (causing the first run on a British Bank in more than one hundred years) then the situations may have stabilized.
“So is the nationalization for good?”
Yeah, but no, but yeah, but no. Who can say? The government has turned down takeover bids by two organizations- one the Virgin Group. Richard Branson must be wondering what he has done to deserve the no, no, no he seems to get from successive governments. First the lottery, now this! No one knows this answer. It may simply be a matter of weeks. However, HM Treasury is at the moment indicating a time period of about three years. That will be after the next election. Funny, that.
“Does Northern Rock have a future?”
Alistair Darling, the darling Chancellor is a wee bit woolly on this one. He says that the business is now run by Ron Chandler the new (soon to be ex as well?) Chief Executive and so it is his decision. Good side stepping from Alistair. Truthfully, Sandler has very few options. Three, in fact. The first is to run down the business which means, no, NR does not have a future. Secondly, he could run it as a proper bank. Surprise. That will lead to a lot of moaning from its competitors who will say that it is unfair on them as NR is now state backed. A quick look at their profits hardly makes one's heart bleed, however. Finally - and most likely - Sandler could do a mixture of the two above. He could pretend to operate it as your common or garden bank but slash the savings interest level and raising the loan rates he could guarantee that NR will be wound up in a few years as customers leave drip by drip rather than all at once.
“Will there be lots of redundancies?”
Bloody hell, yes! There are 6,000 people employed by NR at the moment and it is quite likely that all of these jobs will go. Let's do the math. An average redundancy of pay off at £20,000 each will ensure the tax payer receives a bill for over £120 million. Crikey!
“So, if the other banks are moaning is it fair on them?”
Some people might think that nationalization is a clear message to all the other banks in the UK to be as reckless as they wish and the government will stride in to rescue them at a later date. So, they will trade furiously now, in order to make money and if they lose it Alistair and Gordon will be there to save the day. It is unfair on the banks that act prudently (as Mr Brown would so wish them to do) and so not lend money out to anyone who has just started shaving. Nationalization is not fair on the other banks as it gives NR advantage - a shareholder “tres sympathique” - yes, HM Government!
“So will it finish off in the courts again?”
Abso-bloody-lutely. The larger shareholders will be preparing their writs against the government as I write. Their hope will be that HMG will cough up because they do not want to get all bogged down in legal actions. The largest shareholder is SRM Global. It wants 400 pence per share. That means a bill to the tax payer of over a billion green ones. Whether this is their true value or not, the government will counter by saying that this value only exists at all because of its intervention. It will be up to the Independent Arbiter to value the shares. Then the fur may fly.
So, Northern Rock now, who next?
Life in the financial sectors is a little fraught at the moment. This may bring a smile to some faces as who hasn't wanted the smug grin wiped of the mugs of those city boys at some point in their life? However, it will have a knock on effect to the very bottom of the pile if more of the same happens. Banks do not want to lend each other money at the moment - which some would argue is what caused this whole sorry mess in the first place. However, hoarding cash to balance the books does not make for a healthy economy.
