LONDON (AP):

Northern Rock, which suffered the first run on a British bank in 140 years, will be nationalised after the government confirmed yesterday that it had failed to reach a private-sector deal.

Treasury Chief Alistair Darling ended months of speculation over the fate of the company yesterday by announcing the ailing mortgage lender will be placed under temporary public ownership after two private rescue bids failed to meet the government's criteria for protecting taxpayers.

"The new board and the company will operate at arm's length from the government, with complete commercial autonomy for their decisions," Darling told a news conference.

He said Prime Minister Gordon Brown had agreed nationalisation was the best solution available.

"Under the approach we are taking, the taxpayer will see its outstanding loans to Northern Rock repaid in full, with interest - and that the business can be returned to the private sector as financial markets stabilise," he said.

Risks for taxpayers

He said neither of two private proposals - from Richard Branson's Virgin Group and an in-house bid from the bank's management team - "delivered sufficient value for money to the taxpayer".

The government had said more than £25 billion (US$49 billion) in government loans must be paid back within three years.

Darling said the two private proposals involved risks for taxpayers and very significant government subsidy. Both also involved bidders paying below-market value while the government continued to provide guarantees and financing. Branson rejected the government's decision to nationalise the bank.

"We believe nationalisation is not the right answer and that a commercial solution would have been the best way forward," Branson said in a statement.

Northern Rock ran into trouble in September because it relied too heavily on short-term money markets instead of deposits for funding. A subsequent profit warning and appeal to the Bank of England for an emergency loan led to long lines at branches nationwide in the first run on a British bank since 1866.

The government had been in the middle of an auction process to find a private buyer for Northern Rock PLC, with revised bids submitted this weekend by Virgin and the in-house management team.

Darling had a deadline of March 17 to choose between the bids and nationalisation. That is, the date when he must submit a restructuring plan to the European Union for state aid approval.

Before markets open today, authorities were expected to announce the company's shares will be suspended, Darling said.

Darling said that this afternoon he will announce to Parliament legislation enabling the government to acquire the bank's shares and assets. An independent valuator will determine what the government must pay for the company.