British lender to issue bonds

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LONDON (AP) — British Treasury chief Alistair Darling said yesterday that ailing mortgage lender Northern Rock would issue state-guaranteed bonds to repay billions in emergency government loans, asserting that a private-sector rescue without government help was impossible.

The plan significantly reduces the capital prospective bidders would need to raise to take over Northern Rock, as they will no longer face an obligation to pay back more than $49 billion to the Bank of England.

The bonds — backed by mortgages, securities and consumer loans — will be issued to raise money to pay back the central bank, the Treasury said.

Critics of the plan, which sets a two-week deadline for bids to take over the struggling bank, accused Prime Minister Gordon Brown's government of turning back the clock to the 1970s and a bygone era of state-owned business and big government.

Opposition Conservatives said the move would tie the government to the lender for years and claimed loans and guarantees would amount to a $4,000 burden for every family in Britain.

"This is back to the 1970s — life in Brown's Britain is like an episode of 'Life on Mars,' " Conservative Treasury spokesman George Osborne said, referring to a hit British Broadcasting Corp. TV show in which a present-day police officer finds himself transported back to 1973.

Some analysts also said Mr. Darling's package amounts to virtual state ownership and said the likely slender future operating margins of the bank would be unattractive to potential bidders.

"The new proposals from the UK authorities for the future funding of Northern Rock suggest, in our view, a nationalization in all but name," analysts at investment bank Dresdner Kleinwort said.

Mr. Darling said current financial instability as a result of the credit crunch meant the government had been unable to conclude a purely private sector deal for the bank. "It has proved impossible for Northern Rock to find a purely commercial solution," he said.

"The government's financial advisers believe that there is no chance of achieving a private-sector deal backed entirely with private finance in the near future," Mr. Darling said.

His proposed new financing structure will make it easier for bidders to arrange funding to take over Northern Rock under difficult credit conditions.

Mr. Darling told the House of Commons that nationalization of Northern Rock remains an option if a deal cannot be struck with a private-sector bidder.

"A temporary period of public ownership will be necessary" if a deal cannot be agreed with Northern Rock's preferred bidder Virgin Group, investment group Olivant Advisors or any new bidder, he said.

Mr. Darling said the government has extended loan facilities to the bank until March 17.

Northern Rock shares rose 46.1 percent yesterday to close at $1.84 on the London Stock Exchange.