18 Feb 2008, Alexander Campbell, Risk magazine
The announcement yesterday by finance minister Alistair Darling left the bank's future still in doubt. Nationalisation was not a permanent solution, he said - the government intended ultimately to reprivatise the bank after it had been restructured and market conditions had improved. This could take up to three years, he said today.
But S&P analyst Richard Barnes wrote that the bank would not share the UK's AAA rating while uncertainty remained about its fate.
"If/when the bank is returned to the private sector, the ratings will depend on the financial strength of the buyer(s) as well as Northern Rock's stand-alone credit profile at that time. We do not exclude the possibility that a buyer cannot be found and the government consequently has to place Northern Rock into run-off," Barnes wrote.
The move is the first bank nationalisation in recent UK history - but it had been presaged by the announcement on February 7 from the Office of National Statistics (ONS) that Northern Rock was already effectively nationalised.
The degree of control that the Bank of England exerted over Northern Rock as a result of its guarantees, even without official privatisation, meant its £90 billion of debt belonged on the public balance sheet, the ONS said.
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