CASE STUDY


In September 2007 the international disruption of the credit markets meant that Northern Rock, a UK bank, was unable to refi nance the short-term borrowings it was using to support its long-term lending and so had to ask the Bank of England for emergency funding. When this fact was made public there was a run on the bank, with customers queuing – sometimes for more than a day – to withdraw their money. Customer panic was soothed when the UK government announced that it would underwrite all of the customers ’ deposits (thus making these deposits one of the best investments in the country – paying commercial rates of interest for, effectively, a risk-free government investment). Over the next two months the level of Northern Rock’s borrowing from the Bank of England rose, until it was well in excess of £23 billion, and future government commitments were uncertain. One way out of this for the government would be to fi nd a buyer for the bank, who would repay at least part of the outstanding funds. The various stakeholders in this were: The UK government, with a political and fi nancial need to limit its ongoing exposure, but also a desire not to appear incompetent if an eventual purchaser made a large profi t on the deal. The European Union, whose regulations prevent governments from providing fi nancial support to ailing companies. Members of Parliament on all sides of the political divide, protecting the interests of their constituents and also trying to make political capital. Several potential acquirers of the bank, including private equity and other fi nancial organisations, each with their own agenda. The customers of the bank, still nervous about getting their money back. Employees and their unions, concerned about future employment prospects. People in the north-east of England, where the bank is based and where it provides much employment and charitable support and is seen as a symbol of the success of the region. Retail shareholders in the bank, often individuals who had invested when it converted from a building society, who had assumed their investment was safe and were now losing their money. Many of these were residents of the north-east. Speculative investors, who had bought only when the bank was close to collapse, and so had a different agenda to the long-term holders of shares. For example, at the start of the sale process one hedge fund announced that it would vote against any sale of the bank at an ‘ under-value ’, thus putting its interests directly in opposition to the government’s 1 .

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