UK Chancellor Alistair Darling suffered fresh attacks over his handling of the Northern Rock crisis today amid speculation that the crippled lender faces imminent nationalisation.
Conservative leader David Cameron said the move would be a “staggering failure” for the Government, while Liberal Democrat Treasury spokesman Vince Cable accused ministers of letting the company “bleed to death”.
The attacks came as the beleaguered firm – which owes an estimated £24bn (€31.5bn) in emergency funding – prepares to face down shareholder demands for a greater say at an extraordinary meeting in Newcastle tomorrow.
Hedge funds SRM Global and RAB Capital, which together own around 18% of the lender, want to limit the board’s ability to sell assets and issue shares without prior approval, but Northern Rock chairman Bryan Sanderson has said the “potentially damaging” measures could hinder a rescue.
Mr Cameron, who hopes a private buyer can still be found, said: “If this bank has to be nationalised it will be the most staggering failure for the UK government.
“Shareholders in Northern Rock must know that it is only operating in the way that it is because of vast taxpayer support.”
He added: “We have to protect the depositors in Northern Rock but also we have to protect the taxpayers’ interest. Those are the interests that come first, ahead of those of shareholders.”
Mr Cable also attacked the two companies behind the meeting, who have argued they are looking to protect shareholders’ rights.
He said: “The special interests of a couple of hedge funds who are out to make a quick buck must not be allowed to jeopardise billions of pounds of taxpayers’ money. This is a very small tail wagging a very large dog.
“We have now had months of dithering by ministers while Northern Rock continues to bleed to death.”
He warned: “If the proposed company rule changes are passed at this meeting, Northern Rock’s outlook will be even worse, as any takeover or nationalisation will become even more difficult.”
Mr Cable described nationalisation as the “least bad option” for the bank. It emerged this weekend that former Lloyd’s of London chief executive and City trouble-shooter Ron Sandler had been recruited by the Treasury to head the bank if the drastic move is made.
Mr Sandler’s recruitment provoked speculation over the weekend that a nationalisation of Northern Rock could be just days away.
The British Chancellor meanwhile defended the Treasury’s handing of the crisis but said all options, including nationalisation, were on the table.
Mr Darling said: “We had to intervene to stop the risk of this spreading to other banks. We did that, and now we are trying to find a solution for Northern Rock itself.”
Thousands of investors are expected to attend Newcastle’s Metro Radio Arena tomorrow to vote on proposals of the two hedge funds.
The lender has 100,000 smaller investors and the Northern Rock Small Shareholders Group head Robin Ashby has said he plans to support the proposals.
Potential suitors for the bank, Virgin and Olivant, are reportedly struggling to secure financing and time is said to be running out for the government to find an alternative. Mr Darling added today that a decision over the lender’s future would have to be made “very shortly”.
Northern Rock was at the centre of the UK’s first bank run in nearly 150 years four months ago after soaring borrowing costs in the credit crunch.
It has borrowed an estimated £26bn (€34bn) in emergency funding from the Bank of England so far, although it sold more than £2bn (€2.6bn) worth of mortgages to JP Morgan – the US investment bank which has just hired former prime minister Tony Blair – to ease its burden.
Whatever the outcome of the meeting, the huge extent of Northern Rock’s borrowings means the Government will have the final say over the future of the bank.
According to SRM and RAB – which both bought into the mortgage lender after the Bank’s emergency funding bail-out was announced – Northern Rock is a “strong and viable” business.
Mr Darling added that the investors had bought the shares “with their eyes open” after Northern Rock got into difficulties.
“What I want to do is first of all make sure we safeguard the interests of depositors. Second, I need to make sure that we get our money back because the Bank of England has lent a lot of money to the bank,” he said.