. The acquisition proposal Barron proposed to Chancellor Darling was simple: Didn't you inject £25 billion of loans into Northern Rock? After the acquisition, DS Group could assume this debt and promise to repay it within three years, even using DS Group's assets as collateral. With DS Group's considerable strength, this would ensure the security of these funds and allow the government to be accountable to taxpayers. However, the prerequisite
was that DS Group needed the government to contribute at least another £25 billion, either in the form of an investment or a loan, to DS Group, which would then invest the funds. This would guarantee the repayment of the full £50 billion plus interest within three years, or even sooner. Of
course, the entire process was complex. Simply put, DS Group would issue a special bond, the interest of which would be equivalent to the interest on the £25 billion injected into Northern Rock by the Bank of England...
These special bonds would be purchased by the government and the central bank, totaling £50 billion, to be redeemed within three years.
After receiving the £50 billion, £25 billion will be used to repay the Bank of England's loan to Northern Rock (with interest borne by Standard Chartered). The remaining £25 billion will be placed in an escrow account overseen by the Treasury and the Financial Services Authority, managed by an investment fund established by the DS Group for this purpose. This will ensure the transparency and security of the funds.
This series of operations will undoubtedly be presented to the public with various legal and reasonable packaging, but in reality, the Bank of England or some public fund under the Treasury's jurisdiction will invest the additional £25 billion by purchasing DS Group bonds.
This will seemingly reduce the government's "debt" to £50 billion...
However, once the DS Group receives this funding and completes its acquisition of Northern Rock, the loans it previously invested in the bank will be immediately repaid, completing its public accountability and allowing the government to fully withdraw from Northern Rock.
As for the 50 billion pounds of additional government debt that DS Group is adding...
DS Group itself is one of the largest fund management companies in the UK, so this "investment" can be acceptable with some packaging.
Furthermore, the funds are held in a dedicated, government-regulated escrow account, providing a high level of assurance.
The challenge lies in whether DS Group's related funds can utilize the remaining 25 billion pounds to generate a return of 50 billion pounds within three years... including some interest.
This requires a return of over 100% in just three years, and with such a massive 25 billion pounds, considering the uncertain global economic outlook, few would be so confident.
Except for Baron.
Yes, in Baron's view, this isn't that difficult, at least not as difficult as many imagine.
In reality, he only needs to achieve a return of around 30% within three years...
Why?
Because the current pound-to-dollar exchange rate has already exceeded 2, and by early November, it will reach 2.1163, a three-year high... or even a decade-long high.
But in November 2009, two years later, the exchange rate of the British pound to the US dollar fell to 1.35... Even if Barron did nothing and converted pounds into dollars next month, and then converted those dollars back into pounds two years later, the result would be...
the current £25 billion would become over £40 billion!
Therefore, Barron only needs to consider how to turn £40 billion into £50 billion, a 25% increase.
However, considering that the exchange rate between the two conversions is unlikely to be perfectly ideal, and that additional interest must be paid, a 30% return is sufficient.
A 30% return over three years, averaging less than 10% annually, is not a difficult feat even for a fund exceeding $50 billion.
However, Darling still needs to consider how to conduct such fund operations legally. After all, the government has already injected £25 billion into Northern Rock Bank, ostensibly to prevent the spread of panic and maintain financial order.
However, the additional £50 billion injected into DS Group (half of which will be returned to the central bank as repayments from Northern Rock Bank) requires a justification that can withstand scrutiny.
"I know you can eventually choose to nationalize Northern Rock and turn it into a state-owned bank, sir..."
Seeing Darling lost in thought, Barron said,
"But this also carries risks. Northern Rock itself has a large amount of non-performing assets. Disposing of these non-performing assets is also a risk that needs to be faced after nationalization..." "
And ultimately, after rectifying this bank, you will still privatize it again. The most optimistic estimate is three years from now, or four or five years? By then, many of the current decisions will still need to be made, and without the option of nationalization, will it be better than now?"
The hidden meaning in Barron's words was that the general election was in three years. If this matter couldn't be perfectly resolved before then, then even if nationalizing Northern Rock could benefit the government, it would likely no longer be related to the Brown administration and would most likely no longer be Darling's achievement...
And if nationalization could really solve the problem so effectively, why did Britain choose to privatize so many state-owned assets in the first place?
In the eyes of these people, privatization can make operations more dynamic... Nationalizing Northern Rock was simply their final, helpless choice.
"I can't give you a definitive answer right now, Your Highness, but I can assure you that we will carefully consider the proposal you put forward today..."
Barron wasn't surprised by Darling's final response.
After all, it wasn't yet the deadline they'd given, and they still had time to review the proposals submitted by other bidders.
These institutions and consortiums would negotiate the acquisition with the board of directors of Northern Rock Bank and finalize the acquisition proposal, which would then be reviewed by the Treasury, the Bank of England, and the Financial Conduct Authority.
They had given a deadline—the end of October. If no satisfactory acquisition proposal was found, the government would consider nationalizing Northern Rock Bank...