British Treasury chief Alistair Darling will make a statement to parliament tomorrow about troubled mortgage lender Northern Rock PLC, a government official said yesterday.
The BBC reported yesterday that Prime Minister Gordon Brown has backed a plan for government financial support to enable a private sale of Northern Rock, Britain's biggest casualty of the global credit crisis.
The plan put forward by Goldman Sachs would require the British Treasury to provide tens of billions of dollars of support to Northern Rock for up to five years, the BBC said, without citing sources.
The proposal would probably reduce the chances of Northern Rock being nationalized by easing the pressure on private bidders caused by Northern Rock's huge debts and the difficulty of raising money.
Officials traveling with Brown in China declined to confirm the report, but one official said Darling would make a statement tomorrow. The official spoke on condition of anonymity in line with government policy.
Brown's government has made clear that a state takeover is an option if private buyers fail to raise enough funds to repay more than US$49 billion that Northern Rock has borrowed in emergency loans from the Bank of England.
Goldman proposes converting the Bank of England's loans to Northern Rock into bonds for sale. Those bonds would stay on the public balance sheet until conditions improve in financial markets when they would then be sold in small parcels very few months, the BBC said.
The bank's preferred private bidder, Virgin Chairman Richard Branson, expressed confidence this week that a private deal could be struck. Northern Rock is also considering other offers.
Shareholders oppose nationalization, which would leave them little or nothing of their investment.
A potential obstacle to the reported support plan could be a veto by the European Commission on the grounds that it violates rules against state aid. The EU has given the British government until the middle of next month to find a solution to the Northern Rock crisis.
Northern Rock's virtual collapse has had serious repercussions for Brown's government and the independent Bank of England.
Both have come under fire for their handling of the global credit crisis. Opposition lawmakers say nationalizing the lender would be hugely embarrassing for Britain's reputation as a financial center.
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