Northern Rock: Commission will investigate possibility of state aid

12.00.00am UTC (GMT +0000) Mon 21st Jan 2008

Last year customers queued outside Northern Rock to withdraw their money

In response to this morning's announcement from HM Treasury's on a public/private sector resolution to Northern Rock, Sharon Bowles MEP, European Economic and Competition Spokesperson for the Liberal Democrats said:

"The Northern Rock rescue plan raises several interesting issues. First it depends upon a bond or note being backed up by tranches of mortgages as the security - of which Northern Rock itself will have the riskiest slice. There is an obvious passing resemblance to the tranche based investments that underlie the liquidity crunch and which companies are now desperate to be rid of.

"Of course the solution is the Government guarantee, but as other banks' bonds do not have this backing, it is no surprise that the European Commission will have to investigate whether this constitutes unfair state aid."

Potential buyers of Northern Rock are being requested to submit their restructuring plans to the Tripartite by 4th February so as to undergo examination by the European Competition Commission.

Mrs Bowles added:

"What the Competition Commission will be looking for is assurance that none of the proposals give an unfair competitive advantage to the buyout company, therefore violating State Aid laws. Much will depend on whether HMT will take a hands off approach, so it can be considered a commercial operation, and what share of the equity the taxpayer will get back".

ENDS