Put Northern Rock into run-off
The UK government’s actions and intentions remain confused. It is time to end the uncertainty.
Do Gordon Brown and Alistair Darling share a fantasy: do they imagine themselves triumphantly working the same kind of turnaround on Northern Rock that Christopher Flowers, the billionaire private equity investor, managed in Japan. Flowers himself clearly saw the chance with the failed UK mortgage lender to repeat his career-defining success in reviving the bust LTCB and re-floating it as the born-again Shinsei Bank at a huge profit.
The Japanese government, advised 10 years ago by Goldman Sachs just as the UK government is today, nationalized LTCB in 1998, sold it to Flowers for a small sum in 2000, yet retained liability to clear its worst bad debts, so enabling Flowers to restructure the bank and reap a huge financial gain. In some ways, it was a notable success, mainly for Flowers, but also in showing how temporary public ownership prevented the worst from engulfing Japan’s financial system.
Japanese taxpayers weren’t so pleased, however, by the huge subsidy they paid to a foreign investor and the fact that his resuscitation of the failed bank entailed foreclosure on troubled Japanese borrowers that went bust.
No wonder, then, that Brown and Darling chose to cut out the middleman and exclude, at least for now, any private equity buyer from profiting from a taxpayer guarantee of Northern Rock liabilities.