LONDON The British government deepened its
involvement in Northern Rock NRK.L on Tuesday, offering to
guarantee more of the stricken mortgage bank's liabilities as
it battles to find a private-sector buyer.
Facing growing speculation it could be forced to
nationalise the country's fifth-largest mortgage lender, the
government extended its guarantees to include virtually all
Northern Rock's senior debt obligations, a move aimed at
providing stability and at protecting the bank's credit
A ratings downgrade would further unsettle financing
arrangements and would delay an already protracted sale.
The auction process for Northern Rock, Britain's highest-
profile casualty of the credit crisis, has been thrown into
doubt in recent weeks, but at least two high-profile suitors
remain, including preferred bidder Virgin.
Tuesday's guarantees -- which add to existing guarantees
for retail deposits and some obligations -- mean only
subordinated and hybrid debt is left uncovered, stoking
concerns over the rising cost to the taxpayer of shielding bank
depositors and investors.
A Treasury official, however, estimated the new guarantees
would cover just "hundreds of millions" of pounds of debt. The
Treasury also said Northern Rock would pay "an appropriate
Northern Rock has already borrowed around 25 billion pounds
($50 billion) from the Bank of England since September.
Analysts said the additional guarantees demonstrated the
government's commitment to a private sector solution for the
Northern Rock debacle, rather than full-scale nationalisation
-- something the government has consistently argued, against
growing criticism and speculation.
"The previous announcements have created guarantee
arrangements for all unsecured retail products of Northern Rock
Plc and many of its wholesale deposits and borrowings," the
finance ministry said.
"This announcement extends these arrangements to a wider
range of wholesale products."
The government said it now covered all wholesale deposits,
payment obligations on derivatives, payment under
collateralised and covered bonds that exceeds the underlying
collateral and, finally, any obligation to repurchase mortgages
under its Granite securitisation program for breach of certain
The government said its guarantees would remain in place
"during the current instability in financial markets," adding
it would give at least three months' notice before dropping
Northern Rock's volatile shares were up 2.8 percent at 0928
GMT at 94p, valuing the bank at just under 400 million pounds.
Northern Rock's top shareholder SRM said on Tuesday it had
nudged up its stake in the lender to 9.5 percent.
Credit default swaps in Northern Rock are unchanged at 255
basis points, according to Deutsche Bank prices.
(Additional reporting by Sumeet Desai and Mark Potter;
Editing by Andrew Callus and Erica Billingham)