Northern Rock Effectively ‘Nationalised’ by State Guarantee
September 21st, 2007Via: Telegraph:
Northern Rock has effectively been nationalised by the Treasury’s unprecedented guarantee this week to protect all deposits at the beleaguered mortgage lender.
Details of the arrangement, published yesterday, revealed that the bank’s commercial paper has been entirely underwritten by the taxpayer.
Sources said the move had effectively turned billions of pounds of Northern Rock’s liabilities into gilts.
Danny Gabay, an ex-official of the Bank of England now at Fathom Financial Consulting, said: “This is a nationalisation of Northern Rock. Don’t expect the Treasury to place civil servants at the helm but, to all intents and purposes, the state now guarantees it.”
The Treasury guarantee to “cover existing and renewed wholesale borrowing which is not collateralised” is Northern Rock’s final bail-out. The lender already has at its disposal the Bank of England’s emergency funding facility and, following Wednesday’s humiliating volte-face, access to medium-term money from the central bank, which may pump as much as £40bn into the markets over the coming four weeks.
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“They can’t go bust now,” one banker said. “We’re back to the 1970s.”
