Could we be seeing the first tentative signs that the damaging saga of Northern Rock is over the worst? Confirmation from the bank that it has chosen the consortium led by Sir Richard Branson's Virgin Group as its preferred buyer makes a great deal of sense from many different perspectives.
As the swift backing from the Treasury showed, it would help get the Government and the Bank of England off the expensive hook that they impaled themselves on in underwriting the rescue. Even though the offer would initially pay off less than half of the bank's debt to the Bank of England, it fends off a default and holds out the prospect that all the debt could be repaid.
For Northern Rock's shareholders, Virgin's £200m is far less than they might want. On the other hand, it far exceeds what else is on offer and is considerably better than the big round zero investors would be left with if the bank failed. Incorporated in the terms of the offer is also an invitation to existing shareholders to buy new shares at a preferential price, and the positive reception of yesterday's news by the markets suggests that they would smile upon a Virgin purchase.
For the bank's employees, the Virgin offer holds out the prospect of continued employment and the retention of the bank's base in the north-east. Last, but by not least, the Virgin Group has some of that same populist tinge that – for better and worse – once distinguished Northern Rock. It appears a well-matched suitor.
There are disadvantages, of course, and risks. The head of one of the major hedge-fund investors fired an early warning shot when he threatened – before the announcement about Virgin – to vote against any takeover that he deemed disadvantageous to shareholders. Small shareholders may also play hard to get. And the Bank of England is still left with an enormous debt, which a sharp fall in house-prices could precipitate into default.
Nonetheless, as a way of extracting something – and the prospect of more – from a situation that at times looked dire, the preference for the Virgin bid marks a step forward. Without pitching our hopes unrealistically high, it is now just possible to believe that, while Northern Rock's name and its fatally-flawed business model will be lost, something may yet be salvaged for shareholders, creditors and employees. That is not without significance for a part of the country that has been less extravagantly favoured by fortune in the past decade than the capital and the south-east.
It was a happy coincidence for Gordon Brown and his beleaguered Chancellor – one of very few in recent weeks – that support for the Virgin bid came at the start of a day on which the Prime Minister addressed one of his more critical constituencies, the CBI. The tenor of the speech – as all too characteristically "spun" in advance by No. 10 – was that Mr Brown would outline long-term plans as a way of countering charges of "short-termism" and lack of vision.
Our difficulty with what he had to say was that the "tough" decisions he talked about "not shirking" were precisely the decisions he should be applying his "toughness" to resisting – including plans for the expansion of Heathrow and the apparent go-ahead for more nuclear power stations. What is more, all his talk of decisions for the long term was somewhat obscured by the magnitude of immediate concerns. Northern Rock is far from over yet, and the loss of half the population's personal records casts doubt on the basic competence of government. Financial stability and good management used to be among the qualities that recommended this country to global business. Long-termism, in these circumstances, looks suspiciously like an attempt to draw a veil over key short-term decisions that went wrong.Reuse content