City Reputation Damaged By Northern Rock Crisis

Britain’s reputation as being the world’s leading financial centre has been ‘badly dented’ by the Northern Rock crisis, according to a leading investment bank. Treasury advisers Goldman Sachs said that the fiasco could do as much damage to the country’s economy as Black Wednesday did.

The claim came from a leaked memo written by Jim O’Neill, chief global economist at Goldman Sachs, will be something of an embarrassment for the Government, as Goldman Sachs is helping the Treasury to find a buyer for the stricken bank. Goldman Sachs is due to meet Northern Rock’s board and the Government shortly to discuss the options. Alistair Darling is looking at public ownership for the bank – which would make the taxpayer responsible for £100bn of mortgages. So far the Bank of England has lent £26bn to the bank.

Shadow chancellor George Osborne said: “One of the world’s leading investment banks and the people the Government themselves hired to advise them on Northern Rock have delivered this disturbing assessment of the state of the economy. It shows that Britain will be paying a heavy price on the world’s markets for Alistair Darling’s indecision and mishandling of the Northern Rock crisis.”

O’Neill’s note adds: “The UK is slowing more than the rest of Europe, the Northern Rock factor has badly dented the UK’s reputation for being the world’s pre-eminent financial centre…’ The view from Goldman Sachs echoes a view in the City that the first run on a bank in over a century will have a negative impact on London’s financial reputation in the world.

Mr O’Neill’s note also discloses that Goldman Sachs is looking to profit from betting on a falling pound in 2008. Such news of a lack of faith in the pound – which hit a new low against the Euro in the week – will also draw comparisons with Black Wednesday when financier George Soros made £1bn in a single day