'No timetable, no guarantee of success…but no option'

NORTHERN Rock will be in public ownership for years to come, its new boss has warned, leaving Gordon Brown saddled with the beleaguered bank well into the next general election campaign.

Ron Sandler, the former Lloyd's troubleshooter who saved the insurance firm from collapse, said Northern Rock would not be in private-sector hands any time soon and there were no guarantees that nationalisation would work.

"I do think it's clearly unrealistic to be talking about months; we are clearly talking about a period of some years," he said.

He insisted that it was the right decision, however, and that no plan came with a guarantee.

The warning about the time frame from the new executive chairman, who is paid £90,000 a month, came as the Prime Minister admitted liabilities of some £110 billion would stay on the public balance sheet for some time. "We can't have a timetable when we are talking about the return of better market conditions as a first step to resolving the issue," Mr Brown told a Downing Street news conference.

Standing next to Alistair Darling, the Chancellor, he was forced to fend off suggestions that he was taking on too much risk.

He insisted the government had had to act, or there would have been knock-on effects on the rest of the economy.

"We did the right thing, at the right time, for the right reasons," Mr Brown said. "We have contained the problem. It has not spread across to the rest of the economy."

He added that no developed economy had been immune from the global economic turbulence that had started with the crisis in the United States subprime mortgage market.

The Prime Minister said that the nationalisation of Northern Rock had been the only way to protect the public purse. "We will, and always have, put the interests of taxpayers first," he said.

The drawn-out decision to nationalise the bank, first proposed when it was hit by the credit crunch last summer, has raised questions about Mr Brown's economic stewardship and his decision-making ability.

He appeared agitated when asked whether speculation about last autumn's general election that never transpired had distracted him from the looming financial crisis in the credit markets.

He replied, with sarcasm, that perhaps he should have been keeping an eye on the subprime mortgage market in the US.

Ministers are keen to wait for the housing market to recover before putting Britain's fifth-biggest mortgage bank up for sale. But with analysts warning of a downturn, the prospects of a quick sale are slim.

Taxpayer liabilities for bailing out the bank through loans stood at £55 billion, even before nationalisation.

It has also emerged that Northern Rock will have to pay Olivant and Virgin – the two failed private-sector bidders for the bank – for the fees they incurred.

As emergency legislation to nationalise Northern Rock was introduced in parliament last night, the Conservatives called for the Chancellor to be sacked.

David Cameron, the Conservative leader, said Mr Darling should go after the bank had been nationalised. He said: "What will have to happen is the Prime Minister will have to reconstruct this government, he will have to move his Chancellor and he will have to do it within days or possibly weeks…because I don't think this Chancellor has any credibility left.

Mr Cameron said Tory MPs would vote against a bill on nationalisation, while George Osborne, the shadow chancellor, described Mr Darling as "politically, a dead man walking".

The Northern Rock nationalisation follows policy decisions on capital gains tax, inheritance tax and the rules on non-domiciles that have opened the Chancellor to criticism.

But Mr Darling hit back yesterday, saying the Tories were playing politics with a serious issue. "We could have let the bank go under. But the risks to the wider financial system, for savers and the general public were not acceptable," he said.

Vince Cable, the Liberal Democrats' Treasury spokesman who has called for Northern Rock to be nationalised since its problems first erupted, said the priority had to be an independent audit of the bank to assess the seriousness of its financial problems. "The bank must stop irresponsible lending at more than the value of property, and aggressive deposit-taking," he said.

"There will be difficult times ahead, especially for the employees, as the bank is downsized. However, there is now hope for the long-term future of the bank when it is eventually sold in more satisfactory conditions."

Nationalisation will mean that 800,000 mortgages will now effectively be owned by the government.

Redundancies among the 6,500 Northern Rock employees are inevitable, although the bank's new boss refused to speculate on that subject.

The banking industry is awaiting the bank's business plan to see whether government ownership will give it an unfair competitive advantage.

Legal action looms in battle to put price on bank's shares

SO HOW much might shares in Northern Rock be worth? Can the group's 144,000 small investors expect to see the 90p at which they were suspended? The £4-a-share book value for which hedge funds SRM and RAB are preparing a legal battle? Or the round figure of nothing?

It seems scarcely credible that shares in Northern Rock were trading at more than £12 apiece less than a year ago. But much of that rested on it being a going business with the prospect of rising profits and dividends. That is long gone.

The fine print of the government's promise to have Northern Rock shares "independently valued" under nationalisation could, in fact, lead to the conclusion the shares now have little or no value.

In a statement to the Commons on 21 January, Alistair Darling, the Chancellor, said the legislation he was preparing to give the government the option of nationalising the bank would seek to compensate Northern Rock shareholders based on the value of their shares if the government's support was withdrawn. That might lead a valuer to conclude that the shares were worthless.

Shareholders are already lining up to oppose the move in court. A senior lawyer lined up by Northern Rock shareholders to fight for compensation will seek to take a book-value of £4 per share as the basis to negotiate.

David Greene, from Edwin Coe, who is working on behalf of around 6,000 Northern Rock shareholders and the UK Shareholders Association (UKSA) has said he believes the government is planning to make a "nil" payment to shareholders and he is "optimistic" he can get more than that through legal action. Coe has a history of fighting such cases.

Mr Greene said: "We have been told the book value is about £4, so that is where we take it from. Whether that proves enough I do not know, but it is the basis where we will begin looking at it."

The figure is significantly above the 90p level of Northern Rock shares before they were suspended.

The problem with the "book value" argument is that it is a construct and does not reflect a "willing buyer, willing seller" case. If the book value of £4 a share is indeed so compelling, why did no private-sector buyer come forward with an offer at around this price – or indeed, snap up Northern Rock shares at the 90p level they were trading at last week?

The book value may be substantial. But the bank is only still around because of taxpayer intervention.

An independent valuer is unlikely to force taxpayers to pay for the value of their own support to the bank.

Mr Greene said legal action was likely to begin in the High Court, though it could reach the European Court of Human Rights. He said he believed that shareholders have the stomach for a fight that could last between 18 months and two years.

At the helm: the man they call in a crisis

"HAVE crisis? Will travel." Ron Sandler, the new executive chairman of Northern Rock, could have the slogan printed on his business cards.

The rescue of embattled Northern Rock could be seen as his biggest challenge to date, but it would be run pretty close by his work, along with close friend Sir David Rowland, in pushing through a controversial "reconstruction and renewal plan" to save the 300-year-old Lloyd's of London insurance market from extinction in the 1990s.

Lloyd's had racked up £14 billion of losses between 1988 and 1992. Sir David, as chairman, and Mr Sandler, as chief executive, pushed through a bail-out that infuriated many "Names" – the wealthy individuals who then bankrolled Lloyd's.

Many felt they had been duped by some of Lloyd's operators into the riskier underwriting syndicates.

The two teamed up again in 1999 when Royal Bank of Scotland and Bank of Scotland fought to take over NatWest. Sir David and Mr Sandler were drafted in to repel what Sir David deemed the "tartan hordes". However, RBS eventually won the takeover fight.

Mr Sandler, 55, will be hoping for a more successful banking outcome at Northern Rock. He certainly has the City credibility and connections for the role. Importantly, he worked with Gordon Brown when he was chancellor. The two are said to speak the same language.

In 2002, Mr Sandler produced a government-commissioned review of the long-term savings industry following scandals such as the fall of Equitable Life.

Mr Sandler is married with two children and lists poker as an interest. His aim at Northern Rock will be to confound critics who believe he has been dealt a busted flush.

Martin Flanagan

EUROPE IS WATCHING

THE European Commission said it was keeping a "very close eye" on Northern Rock, following the UK government's decision to nationalise the bank.

The warning comes as a financial services lawyer described the government move as "anti-competitive".

Nigel Frudd, of Rosenblatt Solicitors, said: "The government's retrograde decision to nationalise Northern Rock is inconsistent with European Union subsidy regulations. It provides it with a guarantee that other banks cannot match."

SHAREHOLDERS' VIEWS

SMALL shareholders last night gave their verdict on the decision to nationalise Northern Rock.

Armand Borisewitz, 67, from Aberdeen, said: "I'm resigned rather than angry about the whole thing. Between my wife and me, we've lost £12,000, which is the cost of a car. But I'm not in the same boat as some of those poor souls in north-east England whose nest-eggs have been literally stolen from them by incompetent management."

Robin Ashby, 60, a founder of the Northern Rock Small Shareholders' Group, had invested more than £1,500 in shares which peaked at £10,000 but were now "unsellable". He said: "I'm outraged at the nationalisation. I think I've ended up with the wrong thing at the wrong time in the wrong way."

Peter Graves, 55, from Hartlepool, owned 1,500 shares, which were valued last February at £18,000. By the end of last year, they were worth barely £1,000. "Who knows what my shares are worth now, but I just don't think the government can come in now and say to shareholders: 'We're sorry, you took the risk and lost out'," he said.