A private sector solution for Northern Rock is back on the cards after the Government set out plans to convert the firm’s £25bn Bank of England loans into state-backed bonds.
The move is likely to see new bidders for the lender enter the fray and a deadline of February 4 has been set for proposals to be submitted.
The Monday announcement saw Northern Rock’s share price jump by 46 per cent from 64p to 94p by the end of the day.
To counter accusations of state aid, the plan could see Rock charged hundreds of millions of pounds a year by the Government for underwriting the rescue plan.
The Government says that if no appropriate private proposal is received to take over the bank, it will temporarily nationalise the firm.
John Charcol senior technical manager Ray Boulger says: “I think in the long term it could be quite a clever move. The Government and therefore taxpayers will benefit from any increase in the value of the company so if it can be helped into a viable business, then it could be an added swee-tener for the Government.”
Mortgage Analysis, p39