Northern Rock – three years on

This entry was posted on 19 July

The annual “Mansion House” speeches delivered by the Chancellor of the Exchequer and the Governor of the Bank of England (BoE) often prove controversial, and 2011 was no exception as Chancellor George Osborne announced plans to sell off Northern Rock.

Northern Rock was rescued by the taxpayer in 2008 following a spectacular collapse in 2007 that marked the beginning of the financial crisis. The mortgage bank’s operations were split following the rescue: depositors’ money and its high-street branches were put into a so-called “good” consumer bank, while its toxic loan book was hived off into a “bad” bank, Northern Rock Asset Management. The government aims to sell the “good” bank, but will retain the section containing the bad loans in the hope that some of the taxpayers’ money might be recouped when the property market recovers.

The government intends to sell Northern Rock to a single buyer in order to make as much money as possible for the taxpayer. However, the Chancellor has not ruled out other courses of action – such as selling a proportion of the business – if its plan to sell to a single buyer proves unsuccessful. Once sold, Northern Rock might actually end up being re-mutualised if it is bought by another building society. The government injected £1.4bn into the bank before its collapse, and the flagged sale of the “good” bank might crystallise a short-term loss until the government is in a position to make money out of Northern Rock Asset Management.