Northern Rock's 'challenge' is repaying loan

Northern Rock Plc's "principal challenge" is to find a way to repay at least 25 billion pounds owed to the Bank of England, Chairman Bryan Sanderson said yesterday.

"The situation is very serious," Sanderson told Northern Rock shareholder meeting yesterday in Newcastle, England. Interests other than shareholders' "cannot be ignored", he said.

Investors owning more than 20 percent of Northern Rock are set to back proposals to limit management's ability to sell assets and issue new shares. The measures don't address how to repay the Bank of England.

Northern Rock fell as much 20 percent and traded down 13 pence to 69.5 pence at 10:10 am in London. The shares are down 94 percent from a year ago, valuing the mortgage lender at 277 million pounds.

While private bidders including billionaire Richard Branson's Virgin Group Ltd and Olivant Advisers Ltd have set out plans to run the bank, they haven't secured funding to repay the government.

"It looks increasingly likely to be nationalized," said David Dodds, an SVM investment analyst in Edinburgh who helps manage $1.2 billion.

Private acquirers "will not be able to raise the funds", Dodds said.

Northern Rock was bailed out by the Bank of England in September after it failed to get money-market funding for new loans.

The government may appoint former Lloyd's of London Chief Executive Officer Ron Sandler to run Northern Rock should it be nationalized.

"They can't just take the bank," said Christopher Arnander, a 75-year-old retired banker who owns the stock and showed up for Northern Rock's shareholder meeting in Newcastle. "They have to pass on something to shareholders."

Agencies

(China Daily 01/16/2008 page17)