Rock's biggest shareholders say private sector can still save bank

Cabinet discusses nationalisation option w Chairman insists the company's assets are sound
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The Independent Online

Northern Rock's two biggest shareholders said yesterday that they were confident a private-sector solution would be found for the stricken bank, as its chairman warned against a rushed nationalisation.

Philip Richards, the chief executive of RAB Capital, and Jon Wood, the head of SRM Global, said work on finding a private deal had gathered pace. They added that the Government now understood that they and other investors were willing to put hundreds of millions of pounds into the company.

As the Cabinet yesterday discussed the possibility of nationalisation, Mr Richards said: "We don't think it is good for anybody if Northern Rock is nationalised. We think the Government recognises that and that nationalisation would only be a last resort."

Asked why they were so confident of a private-sector deal, Mr Woods said: "Credit markets have improved a lot and Libor rates have come crashing down... but it is a little bit difficult for us to answer that." Mr Richards added: "Things are moving quite fast... we haven't bought shares for a few days because we don't want to be in a position of knowing something that someone else doesn't."

Mr Richards and Mr Wood, whose funds hold about 18 per cent of the bank, were talking after Northern Rock's extraordinary shareholder meeting in Newcastle, which they called in an attempt to limit the board's ability to sell assets. They gained simple majorities to all their resolutions, but only one – limiting the issue of new shares – was passed as the others required a 75 per cent vote in favour.

The spectre of nationalisation of Northern Rock has loomed larger since the new year. Tough credit markets have made it hard for the bank or potential bidders to secure finance to start repaying about £24bn of loans to the Bank of England. Yesterday the Chancellor, Alistair Darling, updated the Cabinet on the situation amid strong hints that the Government could be moving towards nationalisation.

Gordon Brown, the Prime Minister, told ITV's News at Ten that it was "one of the options that has got to be considered". He added: "There are a number of companies in the private sector that have expressed an interest, but public ownership is one of the options and the reason we've got to look at everything... is that the stability of the British economy is the issue."

Last night the Government was reported to be preparing legislation in the form of a short "emergency" Bill to take the bank into public ownership, as opposed to buying up the company in the conventional way.

Northern Rock's chairman, Bryan Sanderson, told shareholders: "To those who advocate nationalisation and be damned to the shareholders, our response is that this will be immensely damaging to the financial reputation of London and the UK, and the people of the North-east." He said that Northern Rock's assets were sound and that the company was undervalued. The Treasury has given Northern Rock until 12 February to conduct a strategic review and recommend a bid or another private-sector solution to the tripartite authorities. But the Chancellor has said he wants a speedy resolution, and it emerged at the weekend thatthe Government has sounded out Ron Sandler, the former head of Lloyd's of London, to runthe bank under public ownership. The Government has also commissioned Goldman Sachs to come up with financing proposals, which could include packaging up the loans for sale with a Bank of England guarantee, and bringing in sovereign wealth funds from Asia or the Middle East.