Research Roundup: Northern Rock “Nationalisation”
The “nationalisation” of Northern Rock by the UK Government may not herald a return to the state-run industries favored by Britain’s “Old Labour” Party in the seventies, but it seems likely to have an impact far beyond the immediate stakeholders in the troubled lender.
The conservative opposition and media have blasted the decision as a return to failed policies of the past. However, Gordon Brown’s government faced few viable choices after efforts to find a private buyer didn’t pan out. In The Economist’s view, “it should have happened months ago, but the decision, when it came at last, was a humiliating one for what was once one of Britain’s highest-flying banks.”
In the circumstances, however, the decision is the least worst of some poor options. Nationalisation provides legal recognition that the government has, in effect, owned the bank since bailing it out.
Other banks will be watching closely to make sure Northern Rock does not gain an unfair competitive advantage, the Financial Times reports. Elsewhere, the FT’s Lombard column is not too concerned about damage to the UK’s financial reputation. “A private-sector solution, quickly executed, would have been the best solution for Northern Rock. Nationalisation is, in that respect, a defeat.”
But after “Northern who?”, the most common reaction from habitual nationalisers outside the UK will be: “At last they got round to it.”
The FT’s Lex column is sceptical of government claims that the bank will be managed at arm’s length.
FT Political Columnist Philip Stephens writes that nationalisation now best serves the interests of taxpayers.
The protracted delay in facing up to the unavoidable, however, has probably inflicted more political damage than the act itself.
Stephens discusses the political ramifications on an FT podcast.
The Times points out that the deal could put the government in the role of “heartless debt collectors.”
The Government should brace itself for being portrayed, on the one hand, as heartlessly throwing defaulting borrowers and their families on to the street, while, on the other, allowing some welchers to get off free at the expense of innocent taxpayers.
The Wall Street Journal highlights the risk to taxpayers and notes that the government’s success will depend heavily on the U.K. housing economy.
The U.K. government’s decision could also mark the beginning of a new and more acrimonious stage of the financial crisis, in which the moves of governments and regulators inevitably impinge upon the interests of powerful groups.
The BBC provides a handy timeline of developments and a Q&A for what’s next for Northern Rock.
In its analysis, CreditSights says “shareholders will be the main losers, notwithstanding the likelihood of protracted litigation, and job cuts look inevitable, too. But public ownership could actually be good news for most bondholders, with the exception of those owning some Tier 1 securities.”
In an update CreditSights takes a deeper look at the status of Tier 1 and Upper Tier 2 securities:
Our conclusion is that there is a good chance that the government and Northern Rock will continue to pay interest on its Tier 1 and Upper Tier 2 instruments for now.
CreditSights noted that the move was enough for Standard & Poor’s to upgrade its senior debt rating of Northern Rock from ‘A-’ (developing watch) to ‘A’ (positive outlook), and its dated subordinated debt from ‘BBB’ to ‘BBB+’. Its Tier 1 and Upper Tier 2 ratings remain rated ‘BB’, still on watch with developing implications, but its preference shares were downgraded from ‘B’ to ‘C’.
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