Now who would have guessed it?
Potential bidders for Northern Rock are pressing the government to waive a £2bn* interest bill on the stricken bank\’s outstanding £20bn loan. Their representations to the Treasury mark the opening skirmish of what could prove to be a politically damaging battle for control of the bank.
Bidders are arguing for more lenient lending conditions to Northern Rock in return for safeguarding valuable jobs in the north-east of England. One bidder has already highlighted the benefits of its bid for the job prospects of the bank\’s 5,500 workers in Newcastle and Sunderland.
Note that currently Northern Rock isn\’t actually paying interest on that loan, although it is accumulating. So what hte bidders are asking is that the accumulated bill not be called in. Nice work if you can get it, certainly, and I certainly would blame anyone for trying it on. However, I would hope that the Government tells them to bugger off.
Either Northern Rock has a value while accruing that interest or it doesn\’t. If it does then someone will buy it. If it doesn\’t then no one will and it should be gradually shut down. By writing off the interest the Govt (or Bank, or Treasury, to taste) is simply moving money to the current shareholders, increasing the value of NR to their benefit.
As it\’s the shareholders who should be losing money in this affair this isn\’t in fact what we ought to be doing.
But pressure is likely to fall on the chancellor Alistair Darling, who is well aware that Labour has a majority of seats in the north- east and needs to protect them ahead of a general election. Accusations that the government, far from losing money on lending to Northern Rock, was guilty of profiteering are unlikely to play well with MPs in affected constituencies.
Unions in the region, already agitated at delays in the bidding process, could also exert pressure on the government to relax lending rules to allow a bid to go through.
But if the interest is foregone, it\’ll be for that reason. Politics. For, as we know, politicians do things that benefit politicians, not things that benefit you and me.
* One question though. How does borrowing £20 billion for three months at 7% give you a £2 billion interest bill? £350 million, surely?