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Northern Rock to be nationalised

The Government is to introduce emergency legislation today to nationalise Northern Rock after abandoning plans to sell to a private buyer.

The Government says it has concluded that from a financial point of view a temporary period of public ownership would protect the £25bn of taxpayers’ money better than any of the potential private bids.

The Chancellor, Alistair Darling, will announce the full details of the legislation this afternoon in Parliament.

The Prime Minister and Darling took the decision yesterday afternoon to opt for nationalisation. Darling said it had become clear with the private sale options that taxpayers would bear most of the risk but see little of the profit.

However, the Government looks set to face legal action from shareholders who have resisted plans to nationalise the stricken lender.

In a statement released by the Treasury, it says that both private proposals – the management buyout and the Virgin-led consortium – involved a degress of risk for taxpayers and a very significant implicit subsidy from the Treasury.

It says that under the Virgin proposal, the taxpayer would only have seen any share of the private sector’s return if the value of the business to its investors had reached at least £2.7bn.

Under the terms of the Board’s proposal, the Treasury says there were further disadvantages compared to Virgin. It says it would bring less new capital – providing less ‘buffer’ protecting the taxpayer from risk – and the business would have been dependent on Government guarantees for new retail deposits for longer.

The Treasury points out that a subsidy on the scale require would not provide value for money for the taxpayer in circumstances where the private sector rather than the taxpayer would secure the vast majority of the value created over the period ahead.

It says that by contrast, under public ownership the Government will secure the entire proveeds from the future sale of the business in return for bearing the risks in this period of market uncertainty.

Former Lloyds of London chief executive Ron Sandler will be executive chairman of the nationalised company. Former Swiss Re chief financial officer Ann Godbehere has been appointed as chief financial officer of the bank and British Land chief executive and former Abbey National chief financial officer Stephen Hester has been appointed non-executive deputy chairman.

Gordon Brown said in a press conference today that in nationalising Northern Rock the Government had made the “right decision at the right time for the right reasons”.

He said: “I believe we would be failing in our duty if we had not invited private bidders to submit plans and I believe we would also have been failing the board and shareholders if we’d not looked at every possible option for Northern Rock but having had the bids it became clear that the best option for taxpayers was secured by temporary public ownership.”

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