Is there an alternative to nationalising Northern Rock?

Tuesday’s announcement that the Treasury will guarantee lending from other banks to Northern Rock is last ditch bid to avoid having to nationalise the bank. But in truth, most of the best options were closed off by inaction back in September.

National Rock? With the announcement this morning of a further extension of the scope of the Treasury’s guarantee of Northern Rock liabilities, nationalization of the crippled mortgage lender looks an even stronger bet than it did yesterday.

The guarantee, you may remember, initially covered only the £24 billion or so of retail deposits made before everything went pear-shaped and panic-stricken in September. Then the guarantee was extended to cover new deposits after that date and some wholesale deposits. Meanwhile, the taxpayer lent Northern Rock £25 billion via the Bank of England to make up for its inability to attract funding from the interbank market. Now – more than a month after the deadline for private-sector bids to take over the Rock, but with no evident progress on that front – a new guarantee has been put in place to cover ‘uncollateralised and unsubordinated wholesale deposits, payment obligations under derivative trades, and payments under Northern Rock’s Granite mortgage securitisation programme’.

That’s quite a mouthful: the Treasury says it refers only to some ‘hundreds of millions’ of additional liabilities, rather than tens of billions, but no one seemed entirely sure. What the news clearly does tell us, however, is that the Rock story is still moving in the wrong direction as far as the government is concerned.

If money markets were functioning normally, any of the three prominent potential buyers of the Rock could have shaped up by now as credible new owners: Sir Richard Branson, already named as ‘preferred bidder’, offers the strength of the Virgin brand and, love it or hate it, his own personal pizzazz; the consortia led by the US investment firm JC Flowers and the ex Abbey boss Luqman Arnold both offer serious money and serious people.