Northern Rock is nationalised

[CoteDAzur]

Government announces the nationalisation of Northern Rock this Sunday afternoon.

Shareholders are not happy campers. Neither are taxpayers, I imagine, who are footing the bill of Northern Rock management's incompetence.

I thought nationalisation meant ALL assets not just some and it seems in this case granite has all the 'good' mortgages and we have bought the dregs and high liability ones

Shareholders were probably duped but I don't believe government was duped. They hired financial firms to advise in the sale of NR, who, I assume, did due diligence and would have found out all about Granite. Virgin has also done its own due diligence and this is probably why it's bid was only about £1bn

If anybody can be bothered to check whether or not NR disclosed Granite's ownership of its assets, here is its most recent annual statement. Granite should be discussed in "Notes to the Accounts" (pg 67-102).

Update: from the FT:

Taxpayers will bear the risks associated with Granite, Northern Rock?s offshore vehicle for long-term mortgage funding, even though it has not been nationalised, Office for National Statistics officials insisted on Tuesday.

Analysis of the legal underpinning of Granite showed the newly nationalised Northern Rock would be responsible for any defaults on the underlying mortgages, officials told the Treasury committee.

?The Granite securitisation is complex,? said Martin Kellaway, a senior ONS official, ?to whom do the risks and rewards accrue . . . they accrue to Northern Rock?.

The ONS analysis contradicts Alistair Darling, the chancellor, who has suggested Granite is legally separate from Northern Rock. In a letter to Vince Cable, the Liberal Democrat Treasury spokesman, at the time of nationalisation, he said: ?Granite and only Granite is liable to its bondholders under any scenario. The government has not provided any guarantee arrangements to Granite bondholders.?...

The ONS also said it would delay adding Northern Rock to public sector net debt until next month at the earliest. Officials indicated they wanted to get the sums right first, but said guidance that about £90bn of debt would be added to the books was still broadly correct.