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Crisis measures for Northern Rock Crisis measures for Northern Rock
(30 minutes later)
Emergency legislation is to be introduced to temporarily nationalise the stricken Northern Rock bank.Emergency legislation is to be introduced to temporarily nationalise the stricken Northern Rock bank.
Chancellor Alistair Darling said he made the decision because two private takeover offers did not offer the taxpayer "sufficient value for money".Chancellor Alistair Darling said he made the decision because two private takeover offers did not offer the taxpayer "sufficient value for money".
Trading in Northern Rock shares has been suspended.Trading in Northern Rock shares has been suspended.
Shadow chancellor George Osborne said the nationalisation plans were "catastrophic," and that they would be opposed by the Conservatives.Shadow chancellor George Osborne said the nationalisation plans were "catastrophic," and that they would be opposed by the Conservatives.
Legal action
"The trouble with nationalisation, as we're about to discover, [is that] getting into nationalisation is a lot easier than getting out - as those of us who have read about the 1970s can remember," Mr Osborne said."The trouble with nationalisation, as we're about to discover, [is that] getting into nationalisation is a lot easier than getting out - as those of us who have read about the 1970s can remember," Mr Osborne said.
It is the biggest decision made yet by this Prime Minister Robert Peston, BBC Business Editor Read Robert's blog
But the chancellor has been defending his move, saying Northern Rock will eventually be moved back into the private sector.But the chancellor has been defending his move, saying Northern Rock will eventually be moved back into the private sector.
"We had independent advisers look at this, and they all pointed in one direction: the best thing to do was to take the bank into a period of temporary public ownership before ultimately trying to return it to the private sector," he told the BBC."We had independent advisers look at this, and they all pointed in one direction: the best thing to do was to take the bank into a period of temporary public ownership before ultimately trying to return it to the private sector," he told the BBC.
I wouldn't trust this government to run a whelk stall Denis V, Kent Is Darling still in control?In quotes: Reaction to moveI wouldn't trust this government to run a whelk stall Denis V, Kent Is Darling still in control?In quotes: Reaction to move
It seems likely that shareholder groups will take legal action over the government's move.It seems likely that shareholder groups will take legal action over the government's move.
Under nationalisation rules, they will be offered compensation for their holding, at a level set by a government-appointed panel.Under nationalisation rules, they will be offered compensation for their holding, at a level set by a government-appointed panel.
Roger Lawson, chairman of the Northern Rock Shareholders' Action Group said he thought there were "good grounds" for legal action.Roger Lawson, chairman of the Northern Rock Shareholders' Action Group said he thought there were "good grounds" for legal action.
"We've already considered it and obviously SRM - who are one of the major institutional shareholders - have effectively promised legal action already if nationalisation went ahead," Mr Lawson said."We've already considered it and obviously SRM - who are one of the major institutional shareholders - have effectively promised legal action already if nationalisation went ahead," Mr Lawson said.
A consortium led by the Virgin group was leading bids to run the beleaguered bank, while a management buyout had also been considered.A consortium led by the Virgin group was leading bids to run the beleaguered bank, while a management buyout had also been considered.
But ministers decided that nationalisation - the first such move since the 1970s - was the best option.But ministers decided that nationalisation - the first such move since the 1970s - was the best option.
Ron Sandler, nominated by the government to run Northern Rock, said savers' deposits would be secure.Ron Sandler, nominated by the government to run Northern Rock, said savers' deposits would be secure.
UK taxpayers are now subsidising the bank in loans and guarantees to other lenders to the tune of about £55bn.UK taxpayers are now subsidising the bank in loans and guarantees to other lenders to the tune of about £55bn.
Under the new strategy this will jump to £110bn, a cost of £3,500 per taxpayer.Under the new strategy this will jump to £110bn, a cost of £3,500 per taxpayer.
Explaining the government's decision, Mr Darling said it was better for the government to hold onto Northern Rock until market conditions improve and its value increases.Explaining the government's decision, Mr Darling said it was better for the government to hold onto Northern Rock until market conditions improve and its value increases.
The bank will be run at arm's length and on a commercial basis Alistair Darling Q&A: The nationalisationThe bank will be run at arm's length and on a commercial basis Alistair Darling Q&A: The nationalisation
He emphasised that "the long-term ownership of this bank must lie in the private sector".He emphasised that "the long-term ownership of this bank must lie in the private sector".
The Treasury had already recruited Mr Sandler, the former boss of the Lloyd's of London insurance market, to lead Northern Rock, in case it was nationalised.The Treasury had already recruited Mr Sandler, the former boss of the Lloyd's of London insurance market, to lead Northern Rock, in case it was nationalised.
Mr Sandler is widely regarded as having restored confidence in Lloyd's after its years in financial disarray.Mr Sandler is widely regarded as having restored confidence in Lloyd's after its years in financial disarray.
HAVE YOUR SAY It's easy to knock the government but they didn't cause this problem Simon, London Send us your commentsHAVE YOUR SAY It's easy to knock the government but they didn't cause this problem Simon, London Send us your comments
He has said Northern Rock must be reduced to a sustainable size, and it is thought there will be 1,000s of job cuts under his stewardship.He has said Northern Rock must be reduced to a sustainable size, and it is thought there will be 1,000s of job cuts under his stewardship.
Mr Sandler said the changes would have no impact on the guarantees made to lenders, or the government-backed support for savers' deposits.Mr Sandler said the changes would have no impact on the guarantees made to lenders, or the government-backed support for savers' deposits.
"It is business as usual," he said."It is business as usual," he said.
Mr Osborne told the BBC: "After months of dither and delay we have ended up with this catastrophic decision.Mr Osborne told the BBC: "After months of dither and delay we have ended up with this catastrophic decision.
"We now have the situation where the government will be making decisions on whether or not to foreclose on people's loans in a falling housing market.""We now have the situation where the government will be making decisions on whether or not to foreclose on people's loans in a falling housing market."
Northern Rock got itself into financial difficulties last year because its business model left it ill-prepared for the global credit crunch.Northern Rock got itself into financial difficulties last year because its business model left it ill-prepared for the global credit crunch.
It was forced to ask the Bank of England for emergency funding, and triggered the first run on a British bank in more than a century.It was forced to ask the Bank of England for emergency funding, and triggered the first run on a British bank in more than a century.