'Risk' To Northern Rock Rescue Plans

The new Executive Chairman of Northern Rock has warned that the plans to save the beleagured bank are 'not without risks'.

Ron Sandler said that all of the solutions had "an element of risk" and said that it would take years for the bank to pay back the loans from the taxpayer, but stressed that it was "business as usual" at the bank and that there was a good platform from which to stabilise the bank.

The decision to nationalise the beleaguered bank was defended earlier by Prime Minister Gordon Brown and Chancellor Alistair Darling.

Mr Darling joined the Prime Minister at his monthly news conference, where the Prime Minister stressed that the decision had been the "right move".

Mr Brown stressed that the government's decision to intervene in the crisis had ensured an existence for Northern Rock.

He also repeated Mr Darling's statement that the bank would be run "at arm's length" from the government by Ron Sandler, the former head of Lloyd's of London, and the board.

He also said that the bank would be returned to the private sector when there was a change in the "adverse market conditions" and its value increased.

Mr Darling said that the two offers from private sector buyers, including one from a consortium led by Sir Richard Branson's Virgin Group, did not offer taxpayer sufficient value for money.

He said that the government had considered all the options and decided that temporary public ownership was the best option.

However, the Conservatives have criticised the decision. Shadow Chancellor George Osborne described the Northern Rock announcement as "the day Labour's reputation for economic competence died" and described Mr Darling as "a dead man walking".

Mr Osborne said that the government was making the taxpayer bear the full risk of lending £100 billion of mortgages in an "uncertain" housing market. He criticised the way the crisis had been handled, saying: "Gordon Brown has dithered his way to the disaster of nationalisation."

Conservative leader David Cameron also called for the Prime Minister to fire the Chancellor, saying that he had lost his credibility.

However, the Liberal Democrats said that the decision had been the correct one. The party's Treasury spokesperson said: "The first priority must be to work out the seriousness of the problems at the bank with an independent audit of its loan book. This must be conducted under the auspices of the Bank of England, not the FSA.

"Secondly, the bank must stop irresponsible lending at more than the value of property, and aggressive deposit-taking.

"Thirdly, there will be difficult times ahead, especially for the employees, as the bank is downsized. However, there is now hope for the long-term future of the bank when it is eventually sold in more satisfactory conditions.

"There are a lot of unanswered questions, about who for example is paying the expenses for the long detour exploring the Branson bid, but at least the government has now made the first move towards tackling this mountain of a problem."

(KMcA)