BRITISH GOVERNMENT TAKES CONTROL OF TROUBLED BANK

The British government announced today that it is taking control of Northern Rock, the ailing mortgage lender it propped up with $107 billion in loans and guarantees last year.

From The New York Times:

The government rejected two takeover proposals for the lender, which ran into trouble last year because of a money shortage that followed a subprime mortgage crisis in the United States. The government was forced to shore up the company with about £55 billion, or $107 billion, in loans and guarantees.

“The government has completed its review of the two detailed proposals received,” Alistair M. Darling, chancellor of the Exchequer, said at a news conference in London on Sunday. “But in current market conditions, we do not believe that they deliver sufficient value for money for the taxpayer. The government has therefore decided to bring forward legislation to take Northern Rock into a period of temporary public ownership.”

The Virgin Group under Richard Branson and the current management of Northern Rock had both submitted takeover proposals to the government’s adviser, Goldman Sachs, before a deadline earlier this year. Both suggested repaying the loans partly by issuing new shares. Mr. Darling said on Sunday that neither proposal had met all of the government’s objectives of securing financial stability, depositors’ money and taxpayers’ funds.

Under the government ownership plan, the taxpayers’ outstanding loans to Northern Rock will be repaid in full with interest, Mr. Darling said. The private sector alternatives did not meet this test, he said.