Cautious optimism over Northern Rock nationalisation

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.

See also: Northern Rock’s CEO departs
BoE warns of further contagion
Northern Rock fallout continues

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe

You are currently unable to copy this content. Please contact info@risk.net to find out more.

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here