Friday, January 11, 2008

Outsourcing the nationalisation of Northern Rock bank

Guambat has noted before the struggle over in Jolly Old England to either nationalize Northern Rock bank or to simply privatize its profits while the government purse guarantees its losses.

Now, it appears that "Alistair Darling, the chancellor, has told Goldman that the government has no objections in principle to so-called sovereign wealth funds being included in any financing solution."

Treasury believes it is sensible for the sovereign wealth funds to be approached, given that they have accumulated vast cash reserves after the fourfold increase in the price of oil over the last five years. The main players in the region are the Abu Dhabi Investment Authority and the Qatari Investment Authority.

These Middle Eastern states, as well as wealthy governments in Asia, have already helped to prop up the US banking sector, which has been badly hit by the subprime mortgage crisis. The Abu Dhabi Investment Authority has poured billions into the US bank Citi, while Beijing has taken a stake in its rival Morgan Stanley.

Barclays also turned to sovereign wealth funds in China and Singapore when it needed funds for its ill-fated bid for the Dutch bank ABN Amro.

A private sector sale is preferred by shareholders who are anxious that they will lose all the value of their investment if the government resorts to nationalisation - a route that ministers are also desperate to avoid. But it is known to have encouraged Goldman Sachs to consider a number of options to unravel the crisis. Among the options are a private sector buyout, nationalisation with taxpayer support keeping Northern Rock operating until a buyer can be found, or a very brief period of state ownership followed by a bailout by Britain's commercial banks.


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