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Northern Rock rescue deadline set

 Northern Rock rescue deadline set
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The Britain government has set a two-week deadline for a private-sector rescue of troubled mortgage lender Northern Rock. It has also converting 33 billion euros worth of government loans made to the stricken bank into bonds.

Finance minister Alistair Darling is hoping that this will mean a quick deal and rapid repayment of taxpayers money. He told the UK Parliament: “My proposal today is one in which Northern Rock is owned and run in the private sector as a commercial bank and where the government provides a back-stop guarantee to make private financing possible in the current market conditions. I believe this company should be managed within the private sector disciplines and management, provided we can do so on terms that properly protect the taxpayers’ interest.” Darling said if a sale to a private buyer can’t be agreed, Northern Rock will come under temporary public ownership.

The financing package, which must meet EU rules on state aid to companies, 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.

Northern Rock’s troubles stem from the US subprime market meltdown which also hit the German regional bank WestLB.

It has just revealed a net loss of around one billion euros owing to its exposure to defaulting US mortgages as well as fraudulent stock trades by some of its staff. In addition it will write off one billion euros in assets.

WestLB’s owners, local savings banks and the state government of North Rhine-Westphalia,will cover the loss. WestLB is now likely to merge with a rival bank.