David Prosser's Outlook: Rock books into a private rehab clinic

Click to follow
The Independent Online

If only Northern Rock were still a decent-sized member of the FTSE 100 Index. Its share price performance yesterday might have lopped a few points off the market's worrying losses. On a day when the Footsie fell by more than 5 per cent, everyone's favourite mortgage bank was up 43 per cent, thanks to the bond issue dreamt up by those clever people at Goldman Sachs.

It appears, however, that not everyone is as grateful as Northern Rock shareholders for the work put in by the Goldman boffins. Advocates of nationalisation, led by the increasingly ubiquitous Vince Cable, say taking Rock under public ownership would be the most transparent way to end this crisis. Then there is the fear that the Treasury's terms are so generous that it is handing bidders all the spoils on offer if Northern Rock recovers with none of the risk if it doesn't pull through.

Valid criticisms no doubt. But there is much to be said for the rescue package outlined yesterday, particularly as the Chancellor has said it will only proceed if buyers of Northern Rock can demonstrate a sustainable fin-ancing model for the bank.

The Government's case has not been helped by the fact that Sir Richard Branson, whose Virgin Money is still favourite to buy Northern Rock, has spent the past few days wandering around India and China in the company of Gordon Brown. There is no reason to disbelieve Sir Richard's insistence that the two have not discussed the fate of the mortgage bank, but it's never a good idea to give conspiracy theorists fuel for their fires.

Still, it's by no means certain that Virgin will win the day. Paul Thompson, the former chief executive of the insurer Resolution, who last week agreed to join Northern Rock's board as a non-executive, isn't betting on that outcome. Mr Thompson, widely expected to become the bank's chief executive in the event of it retaining its independence, would not have joined if hehadn't thought there were good prospects for chairman Bryan Sanderson's dreams of "self-help". Olivant's Luqman Arnold still thinks he's in with a pretty decent chance too.

Whichever private sector bidder ultimately gets Northern Rock, there's every reason to think they'll do a better job than a public-sector manager under nationalisation. There's a reason why governments of all political hues have in recent years come round to the merits of privatisation – it is that commercial enterprises almost always perform better in private hands.

Moreover, while Alistair Darling has always insisted that he would put the interests of taxpayers first, a policy of ignoring shareholders' concerns altogether would not have been sensible. Ministers concede that investors would have to be compensated were the bank to be nationalised, but years of time-consuming, expensive litigation would still be inevitable.

It's also very easy, amid all the talk of the billions of pounds of debt being shouldered by shareholders, to lose sight of the most likely outcome of this crisis – that the taxpayer will eventually make a handsome profit from the Northern Rock affair.

Remember, the bank is already paying a punitive rate of interest on its loans, and the Treasury is now set to earn a fee for guaranteeing its bonds. In addition, bidders have been advised that their proposals will have to give the taxpayer some exposure to a Northern Rock recovery story, through an equity stake, say, or warrants.

It's possible, of course, that Northern Rock will default on bond repayments, leaving the taxpayer with a nasty bill. But the underlying assets are not sub-prime mortgages or dodgy buy-to-let loans. The bank has a decent quality mortgage book.

Would nationalisation give taxpayers the prospect of even larger gains? Maybe so in theory, but running mortgage banks is hardly the business of government. And in practice, shareholders would still have to be offered a share. The Chancellor's insistence since day one, that a private sector solution was the ideal outcome, has been sensible all along. All this is not to say that the Government can be proud of its handling of the Northern Rock crisis – far from it.

It's clear, in retrospect, that ministers should have jumped at the offer from Lloyds TSB, which privately said it would buy Northern Rock in the weeks before the crisis broke.

It's also pretty obvious that both Mr Darling and his predecessor at the Treasury were hugely complacent about the risks of a major banking collapse – the regulatory system was not up to the task of dealing with such a disaster and nor was protection in place for depositors. This complacency, on such a basic issue, is very hard to forgive.

In the end, however, the reckoning will come down to three questions. Was the Government right to stop Northern Rock going to the wall? Should a solution to the crisis have been found more quickly? And did taxpayers lose out?

The answer to the first of those questions is a resounding yes – had the bank gone under, taking savers' money with it, the damage to our financial system would have been grave. As for question number two – well, ideally, the affair would now be behind us, but there has been a rather tricky global credit crisis to complicate matters. The final question – the most important one of all – won't be answered for some time yet, but the Rock roulette wheel may still come up trumps for the Treasury's coffers.

Less TalkTalk, more action please

Having complained in this column on Saturday that TalkTalk has just terminated my home broadband account without permission or notice, I should add that on further investigation, it appears Carphone Warehouse did try to warn me of the impending disconnection (imposed because I had the temerity not to also buy my phone calls from it). It just forgot to write to me in advance of cancelling my account, apparently issuing a letter (which I have yet to receive) shortly after the plug had been pulled.

These further investigations have also uncovered another explanation for why TalkTalk's customer retention numbers are so good (its latest trading update, issued on Friday, showed surprisingly few customers had gone elsewhere at the end of their initial 18-month contracts).

Even though TalkTalk binned my account without speaking to me first, the helpful people at customer service say that since they've already begun processing the cancellation, it's now too late to issue me with the code I need to transfer to an alternative broadband provider. That cancellation, they add, will take 15 days to complete – and I can't apply for a new account elsewhere until they're finished.

The potential new providers I've spoken to so far reckon I should count on it taking a fortnight to get me up and running, once I'm able to actually get them on the case. In other words, TalkTalk's utter incompetence will leave me without home broadband access for a month.

No wonder no one ever leaves TalkTalk. Its customer retention policy seems to operate on a model pioneered by the governor of Alcatraz. It's the Hotel California of telecoms – you can check out any time you want, but you can never leave.

Leaving aside the issue of my phone rage (TalkTalk could really do with changing its hold music on its customer services line once in a while), there's a more serious issue here. The UK's broadband market has never been more competitive – thanks in part to Carphone's aggressive push into the sector 18 months ago – but if consumers find it so difficult to change provider, all the competition in the world counts for nothing.

The efforts of Ofcom to police this area of the industry are making some difference – complaints about switching broadband service fell from a peak of 480 a week a year ago to 250 a week by last August, the date of the most recent update. My experience, however, suggests there is plenty more work to do.

d.prosser@independent.co.uk

Comments