LONDON (AFP) — Britain announced on Sunday the nationalisation of troubled bank Northern Rock six months after it was hit by the global credit crunch, in an embarrassing blow for Prime Minister Gordon Brown's government.
"The government has decided to bring forward legislation to bring Northern Rock into a temporary period of public ownership," finance minister Alistair Darling said during a surprise press conference at the Treasury in London.
The move -- the first official nationalisation in Britain since the 1970s -- is likely to deal a serious blow to the government's reputation for economic competence.
The government had delayed making a decision about the future of Northern Rock since problems emerged last August in the hope of finding a private sector solution to the lender's woes.
The centre-left Labour government had wanted to avoid nationalisation, which has a stigma in Britain and harks back to the 1970s when the Labour party earned a reputation for disastrous management of the economy.
Darling said the government had rejected two private takeover bids for Northern Rock from entrepreneur Richard Branson's Virgin Group and the bank's own management team.
Darling said this was because "in the current market conditions, we do not believe that the two proposals deliver sufficient value for money for the taxpayer."
He stressed that Sunday's move was temporary, saying that the "long-term future of this bank must lie in the private sector" and pledging to transfer ownership back to the private sector "when it is right to do so."
But Branson said the government's decision was "not the right answer," and expressed his disappointment in a statement in which he argued that "a commercial solution would have been the best way forward."
The government has recruited Ron Sandler, the former chief executive of underwriters Lloyds of London, to run the nationalised Northern Rock.
Based in the north-east city of Newcastle, Northern Rock was plunged into a severe crisis last August when the global credit squeeze forced it to request emergency help from the Bank of England (BoE), Britain's central bank.
The turbulence prompted customers to queue in the thousands to withdraw savings from branches across the country, in turn affecting consumer confidence in the banking sector as a whole.
The BoE has lent the troubled bank about 25 billion pounds (33.4 billion euros, 49.4 billion dollars) in emergency funding since September to keep it afloat.
"Northern Rock will continue operating as a bank on a commercial basis. It will be open for business as usual tomorrow morning and thereafter," Darling added at the press conference.
"Importantly, savers and depositors' money remains safe and secure."
The move was immediately criticised by the main opposition Conservatives, whose finance spokesman George Osborne described it as a "panic decision" and "catastrophic."
Nationalisation would give a "very damaging signal that Britain is returning to a 1970s style of managing the economy," he told Sky News television, adding: "This is the day that the government's reputation for economic competence effectively died."
Last month, the government unveiled plans to keep Northern Rock in the private sector but said it could still be nationalised.
Over the weekend, Northern Rock's board submitted a revised offer increasing the amount of cash it was prepared to pump in to the troubled lender.
Branson had planned to relaunch Northern Rock under the name Virgin Bank and provide a 1.25-billion-pound injection of fresh capital, including 500 million pounds generated through a rights issue priced at 25 pence per share.
Commentators say that both Brown and Darling will likely suffer politically as a result of the move.
Brown worked with former premier Tony Blair to build up the ruling Labour party's reputation for economic competence when he was finance minister for 10 years from 1997 to last year, when he replaced Blair.
And Darling's personal credibility has been seriously hit by the crisis -- a poll published Sunday by the Sunday Times newspaper said that 44 percent of respondents no longer thought he should be finance minister.
He is due to make a full statement on the situation to the House of Commons Monday, while Brown will likely face questioning on the issue at his monthly press conference, also on Monday.
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