Is Northern Rock back on the rocks?
The management of Northern Rock have today announced that the company will stop paying interest, where legally possible, on all outstanding bonds. In a move which is likely to cause concern within the UK banking system and concern for UK taxpayers, who officially own the bank, the reason for the announcement was a need to retain as much cash within the business as possible.
Bond holders have already stepped forward and voiced their fury at the potential move which they believe will ultimately undermine the ongoing recovery in the UK banking system not to mention slash the value of their bond investments. This move is part of a wider plan to split Northern Rock into two operations, one concentrating on existing mortgages and the other holding customer deposits, the branches and future mortgage business.
It is well-known that the UK government would like nothing better than to sell on Northern Rock although a forthcoming £3 billion bailout, further money from the UK taxpayer pot, is sure to attract damaging headlines for Gordon Brown and Alistair Darling who made "very firm" promises to UK taxpayers when the operation was acquired. There is no doubt that Northern Rock has been a disaster for the UK taxpayer and despite paying back a portion of the outstanding loan in the early days of government ownership, the loan has actually been increasing over the last few months as the business has demanded further financial backing.
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