Nationalisation: Northern Rock
Isn't it ironic that the premier league football team sponsored by the struggling Northern Rock plc has entered a decline in its competitive position at the same time as the bank – Newcastle United is ever nearing the relegation zone in the English Premier League whilst Northern Rock has reached the pits.
Indeed, competition in a wider sense is very topical at the moment – competition law that is – and has been a crucial factor in the Government's recent announcement to nationalise the fallen Northern Rock.
On Friday 22 February 2008, The Northern Rock plc Transfer Order 2008 transferred all of the shares in Northern Rock to the Treasury Solicitor as nominee for HM Treasury. Comparatively one could argue that Northern Rock has been deemed ineligible to manage its own affairs and the court has appointed a Guardian (in the form of HM Treasury) to do so in its place.
In essence this means that Northern Rock is now a publicly owned body, which begs the question whether the sponsorship logo on the shirts of players such as Michael Owen should be changed to "UK Tax Payer"? Or indeed, should the shirt of the publicly appointed executive chairman of Northern Rock bear the same logo on his designer threads, as a tribute to his £90,000 per week salary? It is, therefore, the UK tax payers who could ultimately fund such exploits.
Whatever your perception, it could be argued that the Government's movement towards nationalisation has fallen foul of the EU rules on state aid and competition law. Unfamiliar territory it may be, but the rules against state aid are clear – it is prohibited, but for a few exceptions.
Hardly acknowledging the European principles, the Government continues to protest its innocence in respect of state aid and nationalisation of Northern Rock by stating that, "there is no prohibition in the legislation against ownership" and they have made no apparent movement towards complying with the state aid procedure as set out in the EU Treaty. Indeed, they have pled a special case of necessity by the need to protect confidence in the UK banking and financial system.
At worst, this could see the European Commission overruling the UK Government's nationalisation decision on the basis that the aid given to Northern Rock affords it a competitive advantage. Indeed, if one looks at a very minor area of the banking market – deposit guarantees – it is evident that Northern Rock does now have a competitive advantage.
For example, the Government, as owner of Northern Rock, is guaranteeing all savers' deposits with public funds. This is more favourable compared to the usual protection that banks have which is through the Financial Services Compensation Scheme and which guarantees savers' deposits up to a value of £35,000. Any parsimonious investor will see that it is more prudent to protect all of your savings, not just a portion. Competitive advantage? You decide.
If a clear competitive advantage is found then the competition and state aid rules may be proven to be breached. Misguided perhaps, but the Government (bearing in mind the time it has taken them to make the decision to nationalise) should possibly have proceeded down a different avenue and followed the EU guidelines on state aid by concentrating on proving to the Commission that the aid given will be exempt. This would clearly have eradicated any ambiguity and would have avoided any potential future action that may still be taken by the Commission.
So what then for Northern Rock and the UK Government? We now must endure a waiting game to see how the Commission views the nationalisation. It may decide that the assistance by the Government does not pose any competition issues and the Government can continue to follow the financial framework they have set out.
However, the Commission may rule that the UK Government is contravening the rules and Northern Rock may be forced back into the position it was a few months ago.
Whatever the outcome, one thing's for sure – any public/private enterprises should ensure that they are properly advised in relation to state aid and competition law issues from the outset – it could save a lot of time, effort, anxiety and cost.
And for Kevin's boys? Well, all eyes should be on those players at St James' Park – new shirts may help them face up to reality and may see the team (and Northern Rock) regain their status and success in the premier league of life.
FOR FURTHER INFORMATION PLEASE CONTACT: BILL FOWLER