Northern Rock: Reactions from business
Feb 19 2008 by Andrew Mernin, The Journal
IN WHAT is already a jittery time for the banking and finance sector, high street lenders will soon have a new rival moving in next door – the Government.
In a matter of days, Brown, Darling and Co will effectively take charge of about 800,000 home loans and one million savings accounts.
But what effect will the nationalisation of Northern Rock have on the firms doing battle for the same customers as the North East group and how will it change the mood among consumers?
Ian Shepherdson, a former New York and City economist and current columnist of
He said: “If I were a private sector bank, I would be very nervous right now because the Government won’t want to overpay for retail deposits, but the route to get Northern Rock back to health is to increase its retail deposits business. The Government won’t have to offer as big a margin as Northern Rock used to and if I was competing against them, I would be very grumpy.”
Analyst James Irvine, of Dresdner Kleinwort, agrees nationalisation may put rival lenders at a disadvantage.
He said: “This nationalisation means that Northern Rock’s battered deposit franchise has a competitive advantage, particularly over the smaller banks where consumers may perceive slightly higher risk.”
Meanwhile, a banking industry insider said: “The business model put in place is absolutely crucial as far as the rest of the industry is concerned. Are we talking about a Northern Rock that’s effectively in run-off or one that will compete for new business in savings and mortgages? There is some concern.”
Some believe the mood among customers may be little more enthusiastic than among bankers. Nick O’Shea, director of Pharon, believes people will be less likely to put their money with the Rock when it has been nationalised.
He said the rates Northern Rock offered savers were unlikely to be market leading, but more like the ones offered by National Savings & Investments (NS&I), which is backed by the Treasury and has a Government guarantee.
He said: “NS&I rates are always there or thereabouts, but never anything startling.”
A spokesman for Chelsea Financial Services said people who currently had money with Northern Rock should sit tight as it would be pointless to take their money out now.
He said: “It is a strange situation that if Northern Rock aggressively seeks out new customers, it could be in competition with NS&I.”
On the market yesterday, the news of nationalisation seemed to have a positive effect on banking stocks with the whole of the sector rising by nearly 5%.
However, the rise was partly put down to rumours of higher dividends from Barclays and Lloyds TSB later this week.
Jane MacAlister, a divisional director and investment manager at Wise Speke in Newcastle, said: “Bizarrely the Northern Rock news seemed to lift the banking sector stocks because of the removal of perceived uncertainties, although there is still an awful lot that remains unknown.”
“What is important here is that they might give it a chance, although we may have to accept that the bank will come to be smaller than it is now.
“The first priority has to be that we can get the taxpayers’ money back. There’s no way they will take a hammer to it immediately. They have a good man in charge and I think there’s a possibility it has a chance. Although if they want to get the money back quickly, in 12 to 24 months, then I think they will run it down and sell it. But if they are prepared to take some time, it has the potential to grow again.
“I am not particularly concerned about the shareholders here. They always know that investments can go up as well as down. It is unfortunate, but their concerns are clouding the issue here.
“The priorities here are the taxpayer and saving as many jobs as we can of the people who work there.”
Neil Stephenson, chief executive of Middlesbrough technology company Onyx Group
“I sense that everyone knew this was going to happen. We were always going to get here. The Government were never going to get what they wanted for the bank.
“But this is going to be very hard on the workers and it is also unfortunate for the shareholders.
“We have a Government here that has to answer to the taxpayers. They are going to slowly wind this down and sell bits off.
“It will be a slow death. The brand has been broken now anyway. There was little way they could have gone back for months.
“But this Labour Government should be careful what they do here. This area is extremely important for them – they should look after it.”
Roy Stanley, entrepreneur and chairman of successful Washington manufacturer Tanfield Group
“It looks as though a lot of jobs are going to be lost. I think it’s a case that the Government will wind down the mortgage books and focus on making money for the taxpayer. The Government is constrained by European legislation. It is not going to be able to operate the business full-time.
“But personally I feel, as others do here, that it is a desperate situation for a landmark bank and its staff that had the potential to grow further.”
Fiona Cruickshank, of fast-growing Northumberland drugs company the Specials Laboratory
“I am just worried for the jobs in the region and the perception of the region’s ability to operate a business at this level. I think it has been hardest for everyone during this long period of uncertainty. At least now we have a decision, something they can work with. I just hope that that is enough.”
Sarah Green, CBI regional director
“There is recognition the Northern Rock situation has had a significant knock-on impact on a number of North East service sector businesses. However, any further impact on the supply chain is not a consequence of nationalisation but is linked to the lower level of new transactions being undertaken by Northern Rock.
“While Northern Rock is a significant employer in the region, we must remember the North East is not a one-company economy. Northern Rock employees are very skilled in marketable sectors such as customer service and therefore will be highly transferable in a tight labour market.”
Andrew Sugden, policy director at North East Chamber of Commerce
“It’s really pleasing news that Ron Sandler said it’s business as usual. There are obviously some issues to be resolved, such as shareholder compensation, but any solution that brings a degree of certainty to the bank and gives it a chance to go forward is very welcome.”
Francesco Corsi, marketing manager at Entec UK, the environmental and engineering consultancy near the Gosforth HQ of Northern Rock
“The crisis has probably had some impact on the region’s business reputation and on the face of it, the idea that Northern Rock has to be nationalised probably just adds to the negativity. Nobody wants to see jobs go, but there were no guarantees a private buyer would have saved them, and the alternative of seeing Northern Rock go into administration would have been worse in that regard.”
Lucy Winskell, solicitor at Sintons and board member at the Darlington Building Society
“Obviously I’m very concerned about developments. In particular, I’d be anxious to know what the plans are for the future of the Foundation. Naturally, I’m also very worried about the staff.”
Alan Hall, regional director of manufacturers’ organisation EEF
“I think it’s a pity the Government took so long to act if it knew it was going down this route. I’m questioning why it’s taken all these months. I’m concerned about the implications for Northern Rock – I only see a scale-back operation with the Government trying to extricate itself, which wouldn’t have been the way if people like Virgin had come in.”
Lesley McCleod, spokeswoman for the British Bankers Association
“Only time will tell whether nationalising Northern Rock will impact negatively on the banking industry. However, the handling of the affair has been ill-judged from start to finish and has certainly not put the Government, the industry and the UK’s entire financial system in a good light.
“We know from meeting with our members abroad that the incident has had a huge impact. It has been the first thing we talk to them about for some time now and is certainly not a good example of how our Government handles financial difficulties. Certainly it has revealed the weakness of a tripartite arrangement, with the involvement of the Treasury, the Bank of England and the Financial Services Authority ensuring a slow, drawn-out handling of the affair.
Russ Brady, head of public relations at the Co-operative Bank
Unlike Northern Rock, we have not had to rely on finance from elsewhere, but are very much sticking to the old Co-operative model of basing our finances on customer deposits. It’s hard to tell whether Northern Rock falling into public hands will put consumers off the banking industry as a whole. Certainly, the run on Northern Rock has increased the public’s interest in how high street banks conduct their business. It is up to the banks, therefore, to be as open to their customers as possible.”
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