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UK picks new Northern Rock boss

By Steve Slater and Mark Potter
/ Source: Reuters

By Steve Slater and Mark Potter

LONDON (Reuters) - Britain has lined up respected executive Ron Sandler to run Northern Rock should the stricken bank be nationalized, fuelling expectations the government could announce a move to state control within days.

"I've been invited by the government to go in as executive chairman in the event that Northern Rock were to be nationalized," Sandler, a former head of the Lloyd's of London insurance market, told BBC television on Saturday.

The BBC said the government could decide to nationalize Northern Rock within days, a move that could heap fresh pressure on Prime Minister Gordon Brown, who has been widely criticized over the demise of one of Britain's biggest mortgage lenders and who has been hoping for a private sector rescue of the bank.

It would also attract the ire of Northern Rock's shareholders, who are due to due to hold a key meeting in the bank's home town of Newcastle on Tuesday and could be left with nothing under a move to state control.

"I should stress that this is part of a contingency plan," Sandler told the BBC. "You will know that a number of private sector solutions are presently being explored. But in the event that it is felt that nationalization is the most appropriate option, then the government has asked that I should go in on their behalf and chair the bank."

Northern Rock is Britain's biggest casualty of the global credit crunch and has borrowed around 26 billion pounds ($51 billion) from the Bank of England since it requested emergency funds in September -- a step which sparked the first run on a British bank in over a century.

The government has since been searching for a private sector rescue that would lead to repayment of the loans.

Talks with consortia led by Richard Branson's Virgin Group and Olivant, an investment company led by the former head of mortgage bank Abbey, Luqman Arnold, continue.

But speculation is mounting that they are finding it difficult to raise funds due to the continued logjam in credit markets.

The Daily Telegraph newspaper reported earlier on Saturday that U.S. investment bank Goldman Sachs , which is advising the government and trying to arrange financing, had conceded defeat in the battle to raise money for a deal.


John McFall, the chairman of Parliament's influential Treasury Select Committee, told BBC television that state ownership of Northern Rock was becoming increasingly likely.

"I think nationalization is a step closer, and I think it has to be considered as being a step closer in order to preserve taxpayers' money," he said.

"We want this company to prosper in the private sector. But if, as a transition measure, nationalization has to be considered, then so be it."

A Treasury spokesman declined to comment on the hiring of Sandler and said finance minister Alistair Darling last week made it clear that a private sector solution for Northern Rock was preferred, but that he would be exploring all options.

The government has said that any nationalization of Northern Rock would be a temporary measure.

Analysts believe that, under nationalization, the government could sell off parts of the business in a bid to recoup taxpayers' money. Northern Rock said on Friday it had sold 2.2 billion pounds of assets to JP Morgan and that it would use the proceeds to repay some of its Bank of England loans.

The mortgage lender reiterated on Saturday that it favored a private sector solution to its problems and that a decision to nationalize was a matter for the finance ministry.

Goldman Sachs has been expected to provide details of its funding and strategic proposals before Tuesday's meeting of Northern Rock shareholders, people familiar with the matter have said.

It could not immediately be reached for comment.

Sandler has worked closely with the government in the past, developing stakeholder pensions and other retirement investment products.

(Additional reporting by Fiona Shaikh and Mathieu Robbins, Editing by Mark Potter and Steve Slater)