Banking (Special Provisions) Bill

My Lords, my noble friend, and wife, Lady Eccles and I live 12 miles from Darlington. We have always looked north to the admirable city of Newcastle. Our eldest daughter and her family live there. My noble friend Lady Eccles has been a Northern Rock depositor and our charitable endeavours are being greatly assisted by the Northern Rock Foundation. We deeply regret the failure of Northern Rock. Its failure is a sad and severe blow to the north-east. Nevertheless I still wonder why we are here today. In September, when the depositors were given their guarantee and the Bank of England made its first loan, Northern Rock became de facto in public ownership—100 per cent under public sector control. There was no reason not to decide upon a swift and final way forward. The Treasury guarantees will have been accompanied by stringent conditions, the Bank of England loans similarly; for example, as, presumably, a preferred creditor with a ban on asset disposals. Both the Treasury and the Bank of England will have supplanted the inadequate FSA by obtaining the right to information, to the full opening of Northern Rock’s books and many other matters. No doubt before the second Bank of England tranche the question of whether Northern Rock controlled any off-balance-sheet assets would have been answered. Granite could have been unravelled if it was prudent to do so as a condition of any further Bank of England loan. All the leverage lay with the Treasury and the Bank of England. This due diligence was not a complicated matter, but was it done, and was it done in a timely fashion? It is difficult to be sure. Granite has arisen as a surprisingly last minute complication. Monday’s Statement said: "““I will publish shortly the framework agreement””," as if to say there are no agreements now—an astonishing admission. Mortgage finance is not a complicated business, nor is the control of a company engaged in this business. It is the spread between the cost of borrowing and the flow of income from the mortgages that sets the level of profit. In this case one thing is certain. From each day when the Bank of England has made an additional loan to Northern Rock this spread has narrowed. Yet no information has been given to Parliament because no assessment of current trading is available. Parliament does not know what it is being asked to buy—a point made by many noble Lords. Instead, the Monday Statement directed us to remember the long term and promised a future sale, claiming that this assertion of success protected the taxpayer. That brings me to the key missing piece of information without which nobody could determine the least worst way forward. We have been told: "““Throughout last autumn and from the start of this year, the Government wanted to test all the options””.—[Official Report, 18/2/08; col. 24.]" Just as mortgage finance is not a complicated matter, nor is the testing of options when a business is in deep trouble. There are only three. All require a quick and definite decision to be made. The first is to run the business through its troubles as a going concern because the cost will not be too great and success is reasonably assured. The second is to sell it and the third is to realise its assets while greatly restricting the volume of and terms for new business. The most significant step towards making the choice is the calculation of a break-up value. This calculation will control the likelihood of sale and inform the risk assessment of continuing to trade as a going concern. It would take about 10 days for competent advisers to provide a break-up valuation subject to a sensitivity analysis of, say, 5p in the pound either way. Presumably, this key piece of information has been available to the Treasury for months. Nevertheless, Parliament does not have it and so I will hazard a guess. In doing so I take no comfort from the letter which we have seen this afternoon which has a vague FSA assurance. Frankly, I do not believe it. My guess is that if such a valuation has been done, it would have come up with a figure of well below £1 in the pound, give or take 5p. I am not used to having my questions answered so I will confine myself to a short question with three parts. Have there been calculations of break-up value? When were they made? What did they reveal as the estimated value of Northern Rock’s net assets? Now we are presented with a sketch of the way forward. No business plan yet exists, which is astonishing given the leverage granted by Northern Rock’s financing needs of five months ago. If my guesstimate on the net asset value being well below £1 in the pound is anywhere near right, it is no wonder that the Treasury could not obtain a satisfactory deal from either the virtual reality world of Branson or that of the Northern Rock directors. The sale exercise has been just a waste of time and money. On the other hand, if the FSA turns out to be right, it should have been no problem to sell. My final question is, what would be the impact on the economy of the continuance of Northern Rock or its disappearance over, say, the next five years? It would be marginal. No fewer houses would be bought and sold. No fewer mortgages would be negotiated. The competition would need more branch offices, some of them in Newcastle. The total of employment would not be significantly affected—only, and regrettably, its distribution. We need now to recreate the professionalism and the morale of the Treasury and the Bank of England. It must be difficult to work for this Government, who mix such a powerful brew of spin with such a low level of accurate information and timely decision-making. For the whole affair could have been settled in a month to six weeks, and by now Northern Rock would be operating at a much lower level in an extended run-off of its assets. Any thought of its eventual sale to ensure its continuance is for the birds, if they still fly in 2018.