Between a Rock and a Hard Place
While sovereign wealth funds have been racing around the world bailing out beleaguered global banks, none of them have given British bank Northern Rock a second look. In fact, nationalisation is on the cards, although the UK government is hoping not to have to use that politically unpopular last resort. Instead, it is hoped that private players like Goldman Sachs and Richard Branson might fly to its aid. (As one shareholder put it, paraphrased, “I don’t want it to be called Virgin Rock or something vulgar like that.”)
I think European markets are only beginning to come to terms with how exposed they are to credit issues and a US recession. While Asian economies are often characterised as export-led and therefore have to grapple with how ‘coupled’ they are to the US economy, Europe has always been expected to grow slowly and steadily. And as far as SWFs are concerned, they’re clearly not as optimistic about Europe as they are about the US.
Article below.
UK backs Northern Rock bonds, seeks rescue bids
(LONDON) Britain set a two-week deadline for a private-sector rescue of Northern Rock, as it confirmed plans to convert its almost £25 billion (S$70 billion) of loans to the stricken bank into bonds in a bid to smooth a deal.
The financing package will tie the government to Northern Rock, Britain’s biggest casualty of the global credit crunch, for years to come.
But it also increases the prospect of a private-sector takeover, which would avoid a politically damaging nationalisation for Prime Minister Gordon Brown, who has seen his popularity slump in opinion polls in recent weeks.
Details of the plan sent Northern Rock’s battered shares soaring yesterday.
By 1105 GMT they were up 40 per cent at 90.5 pence, valuing the bank at £380 million, still down over 90 per cent since the end of May.
The financing package will be available to the three front-runners for a private-sector deal - Richard Branson’s Virgin Group, a rival consortium led by investment firm Olivant, and an in-house solution under new Northern Rock management.
It could also tempt back into the fray other potential suitors such as private equity firms JC Flowers or Cerberus, although the tight deadline means they need to make a quick decision.
The finance ministry said in a statement it wants suitors to submit detailed proposals by Feb 4.
The bank will be temporarily nationalised if none of the offers is acceptable, it said, but it warned shareholders they would be likely to get little or nothing under such a move.
The government said it would require ‘an appropriate share in potential upside equity returns’ under a takeover after criticism that taxpayers would be guaranteeing billions of pounds while a successful bidder reaps most of the reward. As a result it is likely to be offered an equity stake, possibly by the bidder offering it warrants.
Under Olivant’s proposal it would offer the government warrants over 5 per cent of the enlarged company for it to benefit from any revival.
Northern Rock is estimated to owe the Bank of England about £24 billion since seeking emergency funds in mid-September after being unable to raise cash in financial markets. — Reuters