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Darling unveils Rock rescue plan Darling unveils Rock rescue plan
(10 minutes later)
Chancellor Alistair Darling has outlined details of a funding plan that could help facilitate a private sale of Northern Rock. Chancellor Alistair Darling has outlined plans to convert Northern Rock's £25bn Bank of England loan into bonds before selling them to investors.
The proposals, which need approval from European and UK regulators, would see the bank's £25bn Bank of England loan converted into bonds and sold. The bonds would be guaranteed by the government to speed up a private sale of the troubled lender.
The bonds would be guaranteed by the government to encourage a private sale. However, if a sale to a private buyer cannot be agreed, the bank will come under temporary public ownership.
If a sale to a private buyer cannot be agreed, Northern Rock will be temporarily nationalised, he added. Either way, savers' money will be protected by the government. Northern Rock shares gained 42% after the news.
Bidders have until 4 February to detail proposals based on the plans. No British government has ever provided financial help on that scale to a business Robert Peston, BBC business editor class="" href="http://www.bbc.co.uk/blogs/thereporters/robertpeston/">Read Robert's thoughts in full class="" href="/1/hi/business/7199660.stm">Read Chancellor Alistair Darling's statement in full href="http://www.bbc.co.uk/mediaselector/check/player/nol/newsid_7190000/newsid_7199600?redirect=7199624.stm&news=1&nbwm=1&nbram=1&bbwm=1&bbram=1&asb=1" onClick="javascript:newsi.utils.av.launch({el:this});return false;">Peston interview
Shares in Northern Rock soared by 26.5 pence, or 42%, at 91p.
Bidders have until 4 February to come forward with rescue proposals based on the plans.
The scheme was proposed by bankers Goldman Sachs and was given the green light by Prime Minister Gordon Brown over the weekend.The scheme was proposed by bankers Goldman Sachs and was given the green light by Prime Minister Gordon Brown over the weekend.
No British Government has ever provided financial help on that scale to a business Robert Peston, BBC Business Editor Read Robert's thoughts in full Peston interview
In effect, it turns Northern Rock debt into government bonds or gilt-edged stock.In effect, it turns Northern Rock debt into government bonds or gilt-edged stock.
It would mean the taxpayer would be exposed to Northern Rock for a much longer period than planned. That would mean the taxpayer would be exposed to Northern Rock for a much longer period than planned, analysts said.
It would still need to satisfy the regulatory requirements of the Financial Service Authority (FSA) and the European Commission under its state aid rules. The Treasury's plan still needs to be approved by the Financial Service Authority (FSA), and satisfy the European Commission's rules on state aid for companies.
'Unprecedented''Unprecedented'
"The scale of the financial support the Chancellor has today promised to provide to Northern Rock is breathtakingly large and without precedent," said the BBC's Business Editor Robert Peston."The scale of the financial support the Chancellor has today promised to provide to Northern Rock is breathtakingly large and without precedent," said the BBC's Business Editor Robert Peston.
"No British government has ever provided financial help on that scale to a business.""No British government has ever provided financial help on that scale to a business."
The Treasury extended the Bank of England loan facility for the stricken bank until 17 March to allow time to explore the proposed financing structure with Northern Rock and interested parties.The Treasury extended the Bank of England loan facility for the stricken bank until 17 March to allow time to explore the proposed financing structure with Northern Rock and interested parties.
At the moment there are three front-runners: Olivant, the consortium led by Virgin, and a standalone plan being developed by the Rock's current board.At the moment there are three front-runners: Olivant, the consortium led by Virgin, and a standalone plan being developed by the Rock's current board.
Reports over the weekend said that Sir Richard Branson's Virgin Group was preparing to make an improved offer for the beleaguered lender.Reports over the weekend said that Sir Richard Branson's Virgin Group was preparing to make an improved offer for the beleaguered lender.
According to the Sunday Times, Virgin is preparing to cut its proposed stake in Northern Rock from 54% to 45%. Such a move would allow existing shareholders more room to share in any recovery in the price of Northern Rock stock.According to the Sunday Times, Virgin is preparing to cut its proposed stake in Northern Rock from 54% to 45%. Such a move would allow existing shareholders more room to share in any recovery in the price of Northern Rock stock.
On Saturday, Sir Richard said he had a "winnable package" to ensure the success of his bid for Northern Rock.On Saturday, Sir Richard said he had a "winnable package" to ensure the success of his bid for Northern Rock.
The other interested party is the Olivant group, led by former Abbey boss Luqman Arnold.