UK Chancellor Alistair Darling will today put forward emergency legislation in Parliament to nationalise Northern Rock.
The Rock is due to brought under “temporary public ownership” after the government ruled yesterday that proposals for the bank would not deliver “sufficient value for money” for the taxpayer.
While ministers deal with the fall out of the decision today, Ron Sandler – the man charged with running the nationalised bank – will visit Newcastle in a bid to reassure staff and Northern Rock representatives.
Political opponents said the move to public ownership for the Rock marked the death of the government’s reputation for economic competence.
But Mr Darling insisted it was the best way to safeguard people’s money going forward.
He stressed that the move would only be a temporary measure, with the intention being to sell Northern Rock back to the private sector “at the earliest and most prudent opportunity”.
In making the decision, Darling reassured savers at the bank that their money remained “safe and secure”.
He will be hoping the comments will prevent a return to scenes last autumn when thousands of customers staged the first run on a bank for 150 years.
Sunday’s surprise announcement – no decision was expected until today at the earliest – means that the bank’s estimated £55bn (€73bn) liabilities will be placed in the public’s lap.
It comes after a weekend in which ministers had the chance to examine revised proposals from the two surviving bidders – Richard Branson’s Virgin Group and Northern Rock’s own management team.
But “under the current market conditions” neither proposal delivered “sufficient value for money” to the taxpayer, Mr Darling said.
Branson said he was disappointed by the decision.
He said: “We believe nationalisation is not the right answer and that a commercial solution would have been the best way forward.”
The Virgin-led bid had vowed to keep job cuts to a minimum. Staff at Northern Rock will now have an anxious wait to see what nationalisation will mean for them.
Ron Sandler, the City trouble-shooter who will take over the running of the publicly owned bank, admitted yesterday that the business will have to be slimmed down. But he declined to comment on what this meant in terms of potential job cuts.
The decision to nationalise could also spark a legal challenge by shareholders.
Hedge funds RAB Capital and SRM Global – who picked up around 19% of Northern Rock’s shares after its September crisis – are thought to believe at least 400p a share represents the book value of the company.
But it is unlikely that ministers will be prepared to yield this amount to RAB, SRM and the company’s 100,000 small shareholders – most of whom picked up stock when the Rock floated in 1997.
The UK Shareholders Association, representing individuals with a stake in Northern Rock, said it intended to “pursue any legal options available to it to thwart the nationalisation process and to ensure that fair and reasonable compensation is paid”.
Investors were hit hard by the Northern Rock crisis. This time last year, the bank was worth £5.3 billion. Now it is worth just £375m (€500bn).
The decision to nationalise marks a defining moment in the Northern Rock saga.
It began in September last year when the bank was forced to call on emergency funding from the Bank of England after soaring costs as a result of the drying up of the money markets.
It prompted the first run on a UK bank since the mid-19th century.
Mr Darling yesterday reassured savers that under nationalisation their money would be safe. The guarantees put in place to calm depositors nerves last year would remain.
Darling added: “At every stage the stability of the economy and the interests of depositors and taxpayers have been – and remain – our first concern.”
Nationalisation would be the most effective way to support “Northern Rock’s business, its savers, the wider financial system and safeguard taxpayer’s money”, he said.
But the move brought criticism from political opponents.
Tory shadow chancellor George Osborne said yesterday’s decision marked “the day when Labour’s reputation for economic competence died”.
He added: “Gordon Brown has dithered his way to the disaster of nationalisation.
“Now the taxpayer will bear the full risk of lending £100bn (€133bn) of mortgages in an uncertain housing market.
“We will not back nationalisation. We will not help Gordon Brown take this country back to the 1970s.”
The Conservatives also criticised the timing of the announcement, coming on a Sunday afternoon while Parliament wasn’t sitting.
But others have welcomed the news. John McFall, chairman of the UK Treasury Select Committee, said: “At the end of the day the biggest issue is the safeguarding of taxpayers’ money. If nationalisation saves that money, that has to be the correct step in the long term.”
Liberal Democrat Treasury spokesman Vince Cable said the UK government has made the right decision, “belatedly”.
The prime minister is expected to face questions over the handing of Northern Rock at his monthly briefing with journalists this morning.