LONDON — Northern Rock PLC was officially transferred to state ownership yesterday, five months after the global credit crisis felled Britain’s fifth largest mortgage lender and sparked the nation’s first bank run in more than 150 years.
A strategic review of the bank now begins and a government-appointed committee will determine how, or if, shareholders will get any returns on what was once thought a safe investment in a bank with roots dating back to 1850.
Shareholders are threatening legal action over the nationalization. The government-appointed board that will mete out compensation is expected to recommend little or no return on investments.
The Treasury confirmed it had acquired all the shares in Northern Rock following the approval of emergency legislation Thursday that allowed the government to take over the bank, at least for the next 12 months.
Ron Sandler, the former Lloyds of London boss, has been appointed by the government to turn Northern Rock around.
Investors are just one group unhappy with the bank’s nationalization after bids from the Virgin Group and an in-house management team were rejected.
While Prime Minister Gordon Brown has asserted that state control is the best option for taxpayers who have already funded subsidies to Northern Rock to the tune of $107 billion, rival mortgage lenders fear that the government support will lead to an unfair advantage.
Unions fear broad job cuts for the bank’s 6,250 employees.
The nationalization was almost blocked in Parliament on Thursday, when the House of Lords initially rejected provisions that would exempt Northern Rock from the Freedom of Information Act.
The opposition Conservative Party also accused the government of covering up the fact that it will not acquire a separate bank trust as part of the nationalization.
The trust packages Northern Rock mortgages into tradable securities, and critics said the off-balance-sheet vehicle could be used to siphon off bank assets.
Lawmakers, however, dropped their objections late Thursday, allowing the nationalization to go forward.
Northern Rock became the first bank in 15 years to be bailed out by the Bank of England.
Northern Rock was particularly susceptible to the turmoil in global credit markets because it relied on the wholesale money markets for 75 percent of its funding.
Long lines that formed outside of Northern Rock branches in September dispersed only after the government stepped in to guarantee deposits.