Northern Rock: Privatise or Mutualise.
Back in November 2009 I argued for mutualisation. 100 Members of Parliament supported mutualisation then. The arguments for were:
Savers got a more secure home for their savings, as opposes to retail bank engaged in complex financial instruments that were very risky.
More jobs might be created in the North East of England.
Existing jobs in Northern Rock would be more secure.
More competition from more mutuals against the retail banks.
There were too few mutual building societies without shareholders.
In March 2011 the new coalition Government wants to privatise, and not mutualise. Many jobs have already been lost, including another 680 today. Expensive merchant banks have been employed to advise on privatisation, or more plainly to find a new buyer. Reducing the cost base, or more plainly sacking more employees, will make the bank more attractive to a potential buyer. The bad loans have been hived off into a “bad bank”.
Who gains, and who loses from this privatisation?
The first gainer will be the new buyer. The price will have to take into account the existing losses of this “good bank”, so should be low. The second gainer will be the Government as they recoup from the new buyer some of the capital invested in Northern Rock to keep it from bankruptcy.
The first losers will be the staff who have already lost their jobs. The second losers will be customers of the new bank, which will have to make enough profit to pay its shareholders. This may result in customers paying more for their mortgages, and getting less for their savings.
As to creating investment in the area for businesses, and creating more jobs, Northern Rock will be as good, or as bad, as the other retail banks are currently.
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