The Government has asked its banking advisers to look into selling Northern Rock later this year, according to a report in today’s Times. The paper says that the Treasury is trying to work out whether it would make more money from a flotation, a remutualisation, or a private sale. Since a decent return from the Rock (in such a short space of time) would make the Government look good, we can see why Gordon Brown would fancy the idea. And some would argue that the sooner it’s back in the private sector the better. But would taxpayers’ interests actually be better served by holding onto it for a while?
The Times starts off by saying that a sale could happen as early as the autumn – but then adds the sizeable caveat that Treasury sources have been playing down the possibility, saying (as you’d expect) that they want to ensure the best return for the taxpayer. There’s also a suggestion that the Government is keen to use its ownership of the Rock to boost lending in the short term.
Then again, a sale would allow Gordon Brown to claim not only that he’d done the right thing in nationalising Northern Rock (after much umming and aahing), but also that his strategy for steering Britain through the financial crisis is proving successful. Figures out today from the ONS showed a surprise rise in UK output in April (industrial was up 0.3% , and manufacturing up 0.2%); a big return on the Rock deal would be an even better illustration of progress. Assuming the PM's still lagging in the pre-election polls, the political advantages are obvious.
Former Northern Rock shareholders may not agree; they go to court today in their continuing quest for compensation. Lawyers will argue that their human rights were breached; opponents say that shareholders shouldn’t expect compensation when a company fails. And they’re not helped by the fact that some of the big investors behind the claim only came in quite late – presumably on the assumption that the Government would compensate them (in which case they get no sympathy from us). That said, a sale would place a value on their shares, which might actually give their claims more weight.
It’s not the job of Government to be running banks. So an early sale is attractive in that respect. On the other hand, it might be tough to find a suitable buyer (former suitor Lloyds and the other state-owned banks are out, for example). And if Northern Rock continues to recover (albeit with a few more loans going bad in the meantime), there’s a good chance its value may keep rising, along with the rest of the sector. In which case we’d all be better off if the Treasury hung onto it for a while, rather than flogging it for political capital.
As for remutualisation, we're not entirely sure how that would work. But if it was done on attractive enough terms, perhaps all the people who queued up to close down their accounts back in 2007 will be queuing up again to re-open them...
In today's bulletin:
Is Northern Rock back on the block?
Setanta proving a turn-off for investors
Halfords pedals up profits as commuters get on their bikes
BP's top woman Vivienne Cox resigns
MT Special: Deborah Meaden on what makes a good entrepreneur