Northern Rock nationalisation stumbles in Parliament as subsidiary company is discovered

21 February 2008 / by Rachael Stiles
Less than a week after being told that they are the proud owners of a beleaguered bank, taxpayers now have to contend with the news that Northern Rock also owns another mortgage lender to which it has reportedly given its best loans, leaving the taxpayer with the dregs at the bottom of the mortgage barrel.

There is much concern that should the company, Granite, suddenly fall into hardship and require additional funding, then, as the owners of Northern Rock, the responsibility will fall on the shoulders of the taxpayer. The Government is scrabbling to assure the public that they will not be left holding the short straw, and that while Granite will remain outside of Government control, it is a viable and lucrative business with assets that outweigh its liabilities.

However, the news has been met with scorn from the Prime Minister Gordon Brown's rivals, with Shadow Chancellor George Osborne slating Labour's handling of the whole Northern Rock debacle.

"Now everyone knows that the way Northern Rock and Granite will operate under nationalisation leaves the taxpayers saddled with all the bad debts, with Granite taking the best mortgages." he said. "This is further proof that under the government's plans, the taxpayer comes last."

He added that this news has contributed to the Conservative Party's opposition to nationalisation in the House of Commons yesterday and in the House of Lords today.

Due to such opposition, it could be late evening before the outcome is known, which could mean that what was the UK's fifth largest mortgage lender just 12 months ago, may or may not be nationalised by the day's close.

The mortgages given to Granite are said to amount to approximately £47 billion of the bank's prime loans, but Gordon Brown is adamant that the Jersey-based company has not creamed off all the good mortgages, leaving the taxpayer with the riskier loans on Northern Rock's £110 billion balance sheet, and emphasised that the existence of this company will not have any bearing on the future sale of Northern Rock to a private bidder.

Both the Liberal Democrats and the Conservatives have demanded that Granite be taken into public ownership along with Northern Rock, but the Chancellor Alistair Darling said that this would be of no benefit to the taxpayer and that it presents no barrier to a sale of the bank.

He added that Northern Rock owns no shares in Granite, and that no guarantees have been made to its bondholders.

Liberal Democrat Shadow Chancellor, Vince Cable said: "It is critical that we now look ahead to how this nationalisation can work best for taxpayers. The actual quality of Northern Rock's assets must be assessed so we can decide whether it will be practical to continue to run the bank as a going concern."

© Fair Investment Company Ltd