The British government faced a barrage of criticism yesterday over its decision to nationalize the Northern Rock bank, amid questions over its reputation for economic competence.
Northern Rock shares were suspended yesterday, as a government-appointed trouble shooter took control of the lender, the victim of a global credit crunch which saw the first run on a British bank in over a century last September.
Chancellor of the Exchequer Alistair Darling announced on Sunday that the troubled mortgage lender was being brought into "a temporary period of public ownership" -- the first official nationalization since the 1970s.
Reaction to the decision has been largely unfavorable to the government, with political parties and media accusing the government of delaying too long in trying to find a private sector company to take over the bank and its debts.
Northern Rock, repeatedly accused by ministers of having a bad business model, was forced to apply for emergency Bank of England loans last September, when the global credit crunch hit its ability to raise funds.
Since then it has borrowed an estimated ?26 billion (US$50.9 billion) from the British central bank, although media reports have put the actual liability to taxpayers at ?55 billion or higher.
Darling -- who has a mortgage with Northern Rock -- toured the television and radio studios on Monday morning, insisting that nationalization was the "right thing to do" and returning the bank to the private sector remained his goal.
And he insisted he would stay in his post, after a weekend opinion poll suggested a majority of people want him to step down because of his handling of the affair and taxation policy.
"I'm prepared to see it through no matter how difficult, how uncomfortable that may be from time to time," Darling told Sky News TV, rejecting suggestions that nationalization was a gamble with taxpayers' money.
British Prime Minister Gordon Brown was to hold his monthly news conference yesterday morning and the Northern Rock issue was likely to dominate the session.
Darling was also scheduled to outline the decision to parliament later yesterday.
Meanwhile, the lawyer David Greene, whose firm Edwin Coe represents about 6,000 Northern Rock shareholders, said that legal action seemed inevitable amid concern about the amount of compensation they will receive after trading was suspended.
"The shareholders are clearly angered by this, having been treated with utter, utter disdain throughout this process," he told BBC radio.
The biggest shareholders in Northern Rock, hedge funds RAB Capital and SRM Global, which together own about 19 percent of the bank, are also expected to take legal action unless they receive what they deem a fair price for shares.
Shares were suspended yesterday at 90 pence, giving Northern Rock a stock market capitalization of about ?379 million.
In contrast, at the same stage last year, the bank was worth around ?5.3 billion.
The British media took the view that nationalization severely dented Brown's reputation for sound economic management. However, the Financial Times and Wall Street Journal described the decision as "the least bad" option.
Several newspapers compared the situation with "Black Wednesday," when currency speculators forced the pound out of the European exchange rate mechanism in 1992 under then prime minister John Major.
Even the Guardian, a center-left newspaper traditionally supportive of Labour, accused Brown of delay and "disaster."
"Voters may be persuaded that it is all the fault of global markets and city speculators, but Labour's reputation for economic competence, the bedrock of success in three elections, has cracked, if not shattered," the Guardian said.
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