Yet Another Chapter In The Northern Rock Saga.
By: Ainsley Brown
The troubled – nationalized – UK mortgage lender is back in the news yet again. I guess the headline should have been: Northern Rock, The Never Ending Story.
However, the good news this time is that it’s not about shareholders trying to use the Human Rights Act to bring a case against the government for compensation. No, no, not at all. This time it is about a report by the Office of Fair Trading (OFT) in the market impact of the nationalization of the Newcastle based bank.
The OFT concluded there was no significant adverse impact on competition, due to the nationalization last February, in the financial services sector. The investigation focused primarily on two things. The first was whether the nationalization had created in the minds of the public a perception that because the bank was now in government hands it was safer then other banks. And the second was whether government ownership gave Northern Rock greater access to wholesale funding. Both of which would have had a market distorting effect – it would have had a clear advantage over competitors in financial markets.
The OFT concluded, however, that the impact on current accounts, savings and investment markets had been minimal if not insignificant.
But this might not be the whole truth, as alluded to in the Times. It would seem the OFT report did not take in account the fact that net lending across the UK was forced down radically during Northern Rock’s nationalization when it was forced to repay large government loans.
So yes there was a market distorting effect, just not in the way the report states. As usual things with this story are rarely ever clear cut.
However, one this is for sure; the saga will continue.
