The British government plans to take over troubled bank Northern Rock, saving €2.4 billion of Irish investors' money in the process, writes Barry O'Halloran.
Alistair Darling, Britain's chancellor of the exchequer, said his government will nationalise the bank after talks to sell the struggling mortgage lender to a private company failed.
The move will bring to an end five months of uncertainty surrounding the English bank's future.
The lender was forced to turn to the Bank of England for aid when it ran into trouble last September as a result of the fallout from the financial chaos sparked by the US subprime mortgage crisis. Northern Rock has around 24,000 customers in Ireland, with a total of €2.4 billion on deposit, although some of this money may have been withdrawn as a result of its troubles.
Many of them queued outside its Dublin offices in September to withdraw their money as they feared it would be lost. The bank has not said how much of its Irish depositors' money was taken out at that time.
However, Irish savers' money was guaranteed in September when Mr Darling pledged that British taxpayers' money would be used to cover deposits lost as a result of the crisis in which the bank found itself.
His government's decision to nationalise the bank came yesterday, following talks with Northern Rock managers and Virgin Group, which was the last of a number of suitors, including the institution's management, that offered to buy it.
Nationalising the bank will require the British parliament to pass legislation allowing the state to take over the bank.
The Treasury - the UK's department of finance - will introduce the necessary legislation tomorrow.
Northern Rock shares will be suspended, and an independent panel will determine how to compensate shareholders, Mr Darling said.
The UK has made about £55 billion in loans and guarantees to the bank since September. The decision marks the first time since 1984 that the government has taken control of a bank. Ron Sandler, a former chief executive of Lloyds of London, will manage the bank for the government. The decision will leave ministers at the Treasury responsible for a bank that had £113 billion in assets and 6,500 employees in June.
Reacting to the news yesterday, BGC Partners analyst Howard Wheeldon said, "at last we have the correct decision to sort it out.
"The Virgin bid never seemed to be the right solution as they didn't seem to have the experience, and there was little confidence in the management proposal."
Mr Darling said in a recent BBC radio interview that he wanted to reach a private sale, but he did not rule out a "short- term" nationalisation of the lender, which is based in Newcastle-upon-Tyne. - (Additional reporting Bloomberg)
