Northern Rock to be Nationalized

The Chancellor of the Exchequer Alistair Darling announced today that Northern Rock will be nationalized within the next few days following weak bids for a private sector buyout. Darling rejected buy-out proposals from Northern Rock’s board and Virgin Group because the bids didn’t ensure that taxpayer loans to the mortgage lender would be repaid quickly enough. Northern Rock shares are to be suspended immediately. Securitization analysts said it is yet unclear how this next move in the Northern Rock saga will affect the future of its master trust Granite. Deutsche Bank analysts added that over the short-term, government ownership should not negatively impact the rating. This removes any risk of an early wind-up of the trust or of an insolvency. “We believe nationalization offers no new information on Granite’s likely fate,” said Societe Generale analysts. “We remain of the view that the next two years will see the trust continue as a competitive funding tool. After that, the state of Northern Rock and the securitization market will determine if the trust is allowed to enter a run-off scenario or if it will be able to continue by issuing new notes.” According to Deutsche Bank, the government has given specific protection to keep the Granite master trust operating as usual, probably wanting to keep the trust operating for future funding potential. “For the time-being however, the government has cheaper sources of funding available to it, so it is unlikely to access the securitization markets,” Deutsche Bank analysts said.