The British government is set to provide support to Northern Rock for the next three years under a plan to guarantee at least £30 billion (€40.37 billion) of bonds issued by the stricken mortgage bank.
British chancellor Alistair Darling yesterday described the plan as the only viable alternative to full nationalisation of the bank.
Under the plan, bonds backed by the bank's assets and guaranteed by the government would replace the Bank of England's £28 billion loan to Northern Rock.
This would clear the way for the sale of the bank to a private bidder, to be selected in the next few weeks.
Shareholders and prospective bidders for Northern Rock yesterday welcomed the plan, which follows weeks of intensive discussions. But the British government yesterday came under intense fire from the two main opposition parties, which accused prime minister Gordon Brown of taking unprecedented risks with taxpayers' money to avoid nationalising or winding down the bank.
Mr Darling argued that while it would be irresponsible to rule out temporary public ownership, nationalisation would be only a "stepping stone" to returning the bank to the private sector and would not remove the need for continued state support.
The British government is planning to select a bidder by February 4th and to complete negotiations by March 17th, at which point it will present the package to the European Commission for approval under state aid rules. The government yesterday said it expected bidders to offer some payment in return for the guarantee, and that this would be one of the main criteria it used when selecting a winning bid.
The bidders will also be required to give the government some equity in the restructured Northern Rock to allow it to benefit from any recovery in the bank's share price, and to introduce a strong management team.
Northern Rock shares yesterday jumped 30p, or more than 45 per cent, to 94.25p.
RAB Capital, one of two hedge funds that together hold 18 per cent of Northern Rock's shares and that have been agitating on behalf of shareholders, said it welcomed the government's announcement. - ( Financial Times service)
