Bloomberg News

U.K. Labour Queries Osborne’s Timing of Northern Rock Sale

November 17, 2011

Nov. 17 (Bloomberg) -- The opposition Labour Party called on U.K. Chancellor of the Exchequer George Osborne to explain the timing of today’s sale of the state-owned bank, Northern Rock Plc, asking if a delay wouldn’t have brought a better deal.

Billionaire Richard Branson’s Virgin Money Holdings U.K. Ltd. will acquire the company for 747 million pounds ($1.2 billion). Osborne’s predecessor, Alistair Darling, spent 1.4 billion pounds to recapitalize the Newcastle, northeast England- based lender in 2008 and split it into two units. Government loans totaling 26.7 billion pounds are underpinning the bad bank, which is not part of today’s proposed sale.

“Can you reassure me, and taxpayers more widely that the timing of this sale is in the longer-term interests of taxpayers and consumers?” Chris Leslie, one of Labour’s finance spokesmen, wrote in a letter to Osborne, according to an e- mailed statement. “What grounds did you have for deciding not to wait longer for a better deal? What advice did you receive as to whether selling later would not have led to a smaller loss or even a profit?”

Leslie said that while “it is obviously right that Northern Rock should ultimately be leaving public ownership,” there were concerns that Osborne had given “no serious thought” to remutualizing Northern Rock, which was once customer-owned. Today’s sale was announced while Parliament is on a three-day break.

‘Value for Money’

“The sale of Northern Rock to Virgin Money is an important first step in getting the British taxpayer out of the business of owning banks,” Osborne said in an e-mailed statement earlier. “It represents value for money, will increase choice on the high street for customers and safeguards jobs in the northeast.”

Osborne said the decision to sell the bank was based on advice from financial specialists. The move raised questions about whether he’d be prepared to dispose of larger stakes in Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc at a loss to taxpayers. A spokesman for the Treasury said no parallels should be drawn between the two.

The government injected 65.8 billion pounds of capital into RBS and Lloyds during the financial crisis, giving it stakes of 83 percent and 41 percent respectively. The shares have since declined, leaving a paper loss for the U.K. of more than 39 billion pounds on the two holdings.

--Editors: Louis Meixler, Jeffrey Donovan.

To contact the reporters on this story: Eddie Buckle in London at ebuckle@bloomberg.net; Gonzalo Vina in London at gvina@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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