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Blame for Northern Rock passed around as JC Flowers makes a take over bid

26 October 2007
Another bid has been made for Northern Rock – this time from New York based buyout firm JC Flowers – as the struggling bank comes under increasing pressure from the Government to find a solution to their credit problems by securing a buyer.

The Government is also feeling pressure to demand the resignation of Northern Rock’s board which failed to prevent huge sums of taxpayer’s money being put at risk when they ran into difficulties.

Alistair Darling has been under fire for not urging the Bank of England to take action more quickly, and denied criticisms that the Bank had not acted in the public’s best interests when it rejected a bid from Lloyds TSB because it demanded a £30 billion loan in return.

Any buyer looking to take on Northern Rock will also be taking on its massive debts – £14 billion of short and medium-term loans, and its debt to the bank of England which has now risen even higher to £21 billion; shareholders will not get much of a payout either when it does come to take over time.

In order to prevent similar debacles such as that which befell Northern Rock this summer, the Chancellor is considering new measures that will allow the Bank of England more freedom to mount covert rescue operations for banks that are seen to be struggling. The transparent nature of the current system is such that it perpetuated the situation by causing panic amongst customers, the Bank believes.

While Mr Darling has admitted that there are lessons to be learned from the debacle, he also blamed the FSA for the insufficient monitoring of banks which contributed to Northern Rock’s issues.

He has also reminded Northern Rock that the funding to which it has had access during the height of its crisis will not continue indefinitely and the Government has implemented a February deadline by which time the well will run dry and the bank must take action to stabilise itself.

© Fair Investment Company Ltd