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Trustees await fate of Northern Rock

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  • Trustees await fate of Northern Rock

UK - Trustees of the Northern Rock pension fund are still waiting for a guarantee about the scheme's future as Olivant has withdrawn its bid for Northern Rock, leaving the government to choose between nationalisation or one of the two remaining offers.

Deadline for bids to take on the troubled bank ended yesterday at 5pm, but Olivant Advisers revealed it had withdrawn its offer because it could not make enough money from the deal.

Luqman Arnold, chairman of Olivant, said: "Despite working intensively, we have been unable to formulate a value creation proposal which meets our investment criteria whilst also respecting HM government's proposed financing terms and the interests of other stakeholders in the company."

Of the two offers left on the table, the Virgin Consortium proposes to run Northern Rock as a "going concern" under the new brand of Virgin Bank, and plans to inject £1.25bn (€1.68bn) of new equity into the company, £500m of which will come from the consortium partners, £250m from the Virgin Money business, and £500m from a new rights issue.

Sir Brian Pitman, former head of Lloyds TSB and the man who would become executive chairman of the bank under the terms of the proposal, said the offer was a "sound public-private solution for Northern Rock that will see taxpayers' interests protected and give existing shareholders the opportunity to invest alongside the Virgin Consortium".

Meanwhile, the existing management of Northern Rock put forward a proposal for the refinancing and restructuring of the bank, which would see Paul Thompson, former group chief executive of Britannic and Resolution, appointed as chief executive.

The Board proposes to raise at least £500m in new equity; to reduce the assets held on the company's balance sheet and to reorganise its operations to produce "an independent, well-capitalised, low cost and significantly lower risk mortgage and savings bank".

Although the precise details of the proposals remain confidential, neither the Virgin Consortium nor the Northern Rock management board appear to have addressed the issue of the pension fund, even though an updated scheme valuation has revealed a £100m deficit, and a slightly higher buyout deficit of £150-200m.

A spokesman for the pension fund trustees confirmed while there have been "one or two" conversations with interested parties, "nothing definitive has emerged" and there has still been no response from either the Board or the UK government.

"At this stage, trustees are waiting to see what comes out from yesterday's proposals," the spokesman added.

Earlier this month, trustees of the scheme requested the Board of Northern Rock, HM Treasury or the Bank of England either make the scheme a secured creditor or provide a similar guarantee to the one issued to retail depositors.

Following a lack of response from all parties, the pension scheme has been actively seeking buyout quotes as part of their review of options, so they are prepared if it is decided the fund should go down the buyout route. (See earlier IPE story: Northern Rock trustees eye pensions buyout)

The government has until March 17 to make a decision, as this is the cut off point for it to submit a restructuring plan to the European Commission for approval for the "state aid" element of its finance arrangements.

But, if the government decides neither of the two proposals meet its requirements of ensuring financial stability and protecting the taxpayers interests, it will bring forward legislation to take the bank under "temporary public ownership" rather than let it go into administration.  

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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