Markets could hit Rock repayments

Feb 6 2008 by jez Davison, Evening Gazette

A LEADING financial expert has warned that domestic and global market turbulence could affect the ability of the new Northern Rock owner to meet financial terms imposed by the Government.

Andrew Priestley, a stockbroker for Middlesbrough-based Redmayne-Bentley, said the effects of the US property market crisis and fragile consumer confidence could hinder any potential rescuer’s bid to meet Government demands to pay back within three years up to £40bn of Treasury-backed bonds issued by Northern Rock.

Yesterday, private equity group Olivant blamed inflexible terms in the Government’s refinancing package on its reason to pull out of the bidding war for the troubled bank. This has left the field open for a consortium led by Richard Branson's Virgin group and the Rock's own management team.

Mr Priestley said: “Whether or not Virgin or any other owner is able to pay back the bonds within the required timescale depends largely on domestic and overseas markets. Although the full effects of the US property market implosion has not yet been felt in the UK, consumers’ spending power and confidence will go a long way to determining whether the financial terms can be met.”

Virgin aims to inject £1.25bn of new equity into Northern Rock, with £500m being raised through offering shareholders new shares at 25p each.