British mortgage lender Northern Rock is nationalized

LONDON -- Britain's troubled mortgage lender Northern Rock was officially transferred to state ownership on Friday, paving the way for a new management team to begin a strategic review of the business and for a government-appointed committee to consider compensation for shareholders.

The Treasury confirmed it had acquired all the shares in Northern Rock after Parliament approved emergency legislation that will give the government power to take over ailing institutions.

Ron Sandler, the former Lloyds of London boss appointed by the government to run the bank, will now appoint his board and conduct a strategic review.

Britain's fifth-largest mortgage lender was rescued by loans from the Bank of England in September and the government also stepped in to guarantee deposits.

Prime Minister Gordon Brown's government said the collapse of Northern Rock would have posed risks to the wider financial system, so saving the bank was essential.

The government initially sought a private buyer but rejected two offers last weekend and decided to nationalize the bank instead.

The Treasury said it would "shortly" begin a process to determine compensation for investors.

Shareholders have threatened legal action over the nationalization as a government-appointed board to determine the level of compensation is expected to recommend very little — or no — return for their investment.

Investors are just one group unhappy with the government's decision to nationalize the bank, after rejecting rescue bids from Virgin Group and an in-house management team at the bank.

While Brown has asserted that state control is the best option for taxpayers who have already funded subsidies to Northern Rock to the tune of 55 billion pounds ($107 billion), rival mortgage lenders fear that government support will give the bank an unfair advantage and unions fear large-scale job losses among the company's 6,250 employees.

Analysts expect the lender to be downsized to meet European Union rules on state aid.