No prizes for guessing the weekend’s biggest story: the nationalisation of Northern Rock. At 4pm yesterday, Chancellor Alistair Darling finally admitted defeat in the Government’s long-running efforts to find a private sector buyer for the Rock, and announced it would become the first private company to be nationalised for more than 30 years – although Darling insisted that this is just a ‘temporary period of public ownership’ until the markets recover.
So who’s actually going to be in charge of the Rock, once the emergency legislation is passed today? The official answer is ex-Lloyds of London boss Ron Sandler, who takes over at executive chairman and will supposedly be running the bank ‘at arm’s length’ from the Government.
But the question is: will the Government be able to stop itself interfering? If previous nationalisations have taught us anything, it’s that when the Government is the majority shareholder, it shouldn't also have operational control. After all, the last people you actually want to be running the show are politicians. Especially if they’re Alistair Darling – after presiding over controversial changes to inheritance, capital gains and non-domicile tax, in addition to the ongoing Rock saga, the Chancellor’s hard-won reputation as a safe pair of hands has been well and truly blown out of the water. In fact, regard for his managerial competence couldn’t sink much lower if he turned out to be former England boss Steve McClaren in disguise (and let’s be honest, we’ve never seen them both in the same room).
On the other hand, the Government has the most to lose. On BBC Radio 4’s Today programme this morning, Darling squirmed through a painful interview in which he was reminded of agreeing to Labour MP Jim Cousins’ assertion that nationalisation ‘would lead to a slow lingering death for the jobs of the Northern Rock workers, its assets and Britain's reputation as a major financial services centre’. This may have been slightly unfair (he was actually agreeing that a ‘successor business’ was needed) but it’s clear that he and the Prime Minister were desperate to avoid nationalisation. Their failure to do so weakens their position considerably.
And the bad news will keep on coming. Nationalisation may have offered the best value to the taxpayer, but almost everyone else involved will be hopping mad. The Rock’s shareholders (especially hedge funds RAB and SRM), who now stand to get next to nothing for their stock, will almost certainly sue the Government – so the courts will have their say. The bank’s long-suffering employees, many of whom will stand to lose their jobs as part of the restructuring, will be up in arms. Gordon Brown’s former best mate Richard Branson will be livid that he’s wasted so much time and money for nothing. And the rest of the banking world will be fed up because rather than being punished for its failures, the Rock is now actually competing against them with Government backing (Darling said this morning it was still open for new business).
So 'Rocket Ron' might find it quite tough to run the Rock at arm's length from anyone...