Northern Rock

Part of Oral Answers to Questions — Education – in the House of Commons at 3:34 pm on 21st November 2011.

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Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury) 3:34 pm, 21st November 2011

Thank you very much, Mr Speaker. I was simply making the point that the Chancellor ought to have been here today because there are so many questions to answer about this deal. Obviously it is right that Northern Rock should be leaving public ownership, just as it was right to take it into public ownership in 2008 to avoid a catastrophe, but the decision to sell at this time and in this manner raises some very serious questions. Will the Minister confirm the net loss to the taxpayer from the sale, and that the proceeds will be used in their entirety to pay down the national debt?

On the sale’s timing, I read in the papers, and the Minister said again today, how the Government are blaming Europe and Labour—I am surprised that they have not blamed the civil service yet. These are weak excuses that just will not wash. He should start taking responsibility for some of his own decisions, and he should be doing what is right for the British taxpayer, not hiding behind EU rules. If he felt constrained by the EU requirement to sell by the end of 2013—let us remember that it is still only 2011—why did the Government not try to change that? If he is now suggesting that it was a bad deal for the taxpayer and that he would rather have waited, why did he not ask the European Commission for an extension? With the economy flat-lining, bank shares in decline and a deepening crisis in the eurozone, he could easily have made the case that circumstances had changed. Or does this fire sale suggest that they think that conditions will get even worse?

The Government have a duty to ensure that the deal is good for taxpayers, the economy, the new company and its customers and staff, so why is he scared to issue an initial public offering for Northern Rock? With about £700 million of excess equity on its balance sheets, why on earth is he selling it privately for 66p in the pound? Contrary to the headlines, this deal is funded not principally by Richard Branson, but rather with £250 million from US financier Wilbur Ross, a stake from an Abu Dhabi sovereign fund and—wait for it— £250 million of Northern Rock’s own money, using its existing capital assets in a complex financial swap deal. Is the Minister not a little troubled that the company’s assets are being stripped even before it changes ownership?

What is Northern Rock’s current core tier 1 capital position, and what does the Treasury anticipate it will be in three years? We know that the Financial Services Authority has voiced its anxieties about such a substantial removal of capital. What safeguards will it be given if these capital buffers are to be thinned out so dramatically? The Financial Times reports that Wilbur Ross has paid about 80% of the book value for Northern Rock, yet he is quoted as saying that he would have

“to sell out a few years down the road for 1.5 times book value.”

That is 150%. Is the Minister comfortable with the news that the Government have sold to an individual actively planning to dispose of the bank quickly and nearly double his money? Does that not indicate that the Treasury might be selling prematurely and at the wrong price?

I am amazed that the Minister has agreed to underwrite a further £150 million of the buyers’ payments? I have heard of vendor financing, but agreeing to accept £150 million of debt so deeply subordinated as to be basically unsellable takes the biscuit. Is it not possible that the subsidy will be regarded as further state aid, and is he presumably seeking EU Commission approval for that? Will he at least guarantee that the Treasury will receive a payment every year on that £150 million, and that we will get it all back by the end of this Parliament?

The coalition agreement promised to promote mutuals and financial services, yet no apparent consideration was given to the mutualisation of Northern Rock. Why did Ministers not try harder to develop that option?

Will the Minister publish the analysis on the basis of which they dismissed a member buy-out? The concerns about the decision to run down £250 million of Northern Rock’s capital reserves are not just an issue for the taxpayer; they also reduce Northern Rock and Virgin Money’s ability to provide significant credit in a market crying out for mortgage finance. Despite the new owners’ reported assurances, there are no contractual guarantees that branches or jobs will be retained. Savers in Northern Rock will also need reassurance that their new bank’s depleted capital reserves will not bring repeated anxieties if another banking crisis occurs.

The Chancellor opposed the original decision to rescue Northern Rock, saying:

“I am not in favour of nationalisation, full stop.”—[Hansard, 19 February 2008; Vol. 472, c. 186.]

Is this not a golden opportunity for him to hold up his hands and admit that he made a mistake, and do not the growing question marks lingering over this giveaway deal also suggest that his judgment is as wrong now as it was then?