The UK Chancellor of the Exchequer, Alistair Darling, announced this week that the beleaguered bank, Northern Rock, is to be nationalised as a temporary measure.
Northern Rock got itself into financial difficulties last year because its business model left it ill-prepared for the global credit crunch. It was forced to ask the Bank of England for emergency funding, triggering the first run on a British bank in more than a century.
After months of talks with potential bidders, including a consortium led by Richard Branson’s Virgin Group, private-equity group Olivant Advisers Ltd, and a management buyout, the UK Government has decided that nationalisation – the first such move since the 1970s – is the only option. The nationalisation plan will be rushed through the UK Parliament this week.
Shares in Northern Rock have been suspended. Under nationalisation rules, shareholders will be offered compensation for their holding, at a level set by a Government-appointed panel. However, investors are already threatening legal action claiming that the government’s plan for a temporary period of state ownership infringes their human rights.
