The fate of Britain's fifth largest mortgage lender, stricken by the global credit crisis, no longer hangs in the balance, as the British Parliament approved a bill nationalizing Northern Rock.The banking bill allows the government, for a period of 12 months, to nationalize an ailing financial institution if it poses a "serious threat" to the stability of Britain's financial system.
Shares in mortgage lender have now been canceled, while its debt securities, which are not transferred, will continue to trade.
The Treasury said it will shortly issue an order to establish how companies will be compensated for their holdings, adding that an independent valuer will assess any compensation that may be payable.
"The principles for assessing any compensation, set out in the Act and to be supplemented in the compensation scheme order, reflect the principle that the government should not be required to compensate shareholders for value that is dependent on taxpayers' support," it said in a statement.
Northern Rock continues to be open for business as usual, and the government's guarantee arrangements remain in place. Depositors' money remains safe and secure, the Treasury added.
Despite the Governments decision, shares of Northern Rock continued their ride down, sinking to 90.00 pence per share. I think there is no need for commenting on the stock's ride over the last year. You can see yourself what a roller-coaster ride the stock had.
Shareholders are threatening legal action over the nationalization. The government-appointed board that will mete out compensation is expected to recommend little or no return on investments.
At the same period in 2007, the bank was worth about £5.3 billion, while now the bank is worth £379 million.
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