Northern Rock nationalised!

The UK Government last night moved to defend its economic credentials after nationalising Northern Rock, the mortgage lender that fell victim to the credit crunch last year.

Prime Minister Gordon Brown and Chancellor of the Exchequer Alistair Darling were due to answer critics - Mr Brown at his monthly press conference with reporters last night (Melbourne time) and Mr Darling in Parliament early this morning.

The decision marks the first official nationalisation in Britain since the 1970s.

Mr Darling rejected proposals to buy the bank from Northern Rock managers and Virgin Group and will introduce legislation to Parliament to enable the Government to act.

He said Northern Rock shares would be suspended and an independent panel would determine how to compensate shareholders.

Bids for the bank didn't "deliver sufficient value for money", Mr Darling said at a press conference in London yesterday.

He said government ownership would be "temporary" until "current market conditions" make a rescue possible.

"The Government has decided to bring forward legislation to bring Northern Rock into a temporary period of public ownership," he said.

The Government had delayed making a decision about the troubled lender's future in the hope of finding a private sector solution to the problems that emerged in August.

British authorities have extended pound stg. 55 billion ($A118 billion) in loans and guarantees to Northern Rock since September, when its credit lines dried up and triggered the first run on a British bank in more than a century.

Mr Brown's centre-left Labour Government had hoped to avoid nationalisation, which has a stigma in Britain and harks back to the 1970s when the Labour Party earned a reputation for disastrous economic management.

Mr Darling stressed that Sunday's move was temporary, saying the "long-term future of this bank must lie in the private sector", though the time-table for returning it to private hands is unknown.

Former Lloyds of London chief executive Ron Sandler has been recruited to run the nationalised bank.

He has advised the Treasury on pensions and will manage Northern Rock's pound stg. 113 billion in assets and 6500 employees.

Northern Rock, based in Newcastle, was plunged into crisis last year when the worldwide credit squeeze forced it to request emergency help from the Bank of England. Since then, it has borrowed an estimated pound stg. 26 billion from the British central bank.

Richard Branson, who had planned to relaunch Northern Rock as Virgin Bank and provide a pound stg. 1.25 billion in fresh capital, said in a statement that the Government's decision was "not the right answer".

He argued that "a commercial solution would have been the best way forward." However Branson has been criticised for his rescue package that would have resulted in large numbers of redundancies, and his track record regarding transparency.


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