Why the future for the Rock may be good and bad
Jun 11 2009 by Peter McCusker, The Journal
Although the EC may well stall on giving the go-ahead immediately the proposal is likely to be approved by the autumn.
The Rock wasn’t expected to go up for sale until at least 2011, but with credit conditions easing, and the Northern Rock having fulfilled its aim to lend more during the first few months of this year, pressure will mount on the Government to sell the business to ease its vast debts.
Jule Wilson, communications manager at Northern Rock, said: “Our ultimate aim is to return to private ownership and we are working with the Government as our shareholder to achieve this, but talk of a sale of any part of the business at this stage is premature.
“We are currently going through the State Aid process regarding our revised business plan and this is very much normal practise. It will involve a legal and capital restructuring of the business into two separate legal entities, to maximise capital efficiency and value for the taxpayer.
“Although we are expecting the opening decision by the EC in the coming weeks, this is still very much the initial stage within that process, but we envisage the legal and capital restructuring to be complete within the second half of 2009. No other timescales or details regarding the restructure have yet been agreed.”
The bank has staged a remarkable recovery since it was nationalised in September 2007 and has paid back more than £18bn of its £28bn Government loan and reduced its mortgage balance by 2007 in 2008 to £66.7bn.
It said that its plan to lend up to £14bn in new mortgages by 2011 had seen customers flocking back through its doors this year and that its new lending strategy had given it renewed stability and could even lead to new jobs being created at its Gosforth headquarters in the long term.
Earlier this year Northern Rock said its recent downsizing, which saw 1,300 people made redundant and 200 people leave of their own accord, was now finished.
David Isbell, the Unite regional officer representing the Northern Rock staff, said workers were worried by on-going rumours about the bank’s future. He said he was aware of the plans to split the bank into “good” and “bad” banks.
“If that is to be the case then it is our responsibility to ensure that staff on both sides of the divide are protected. The staff have to be equally treated for their future security. We have major concerns on the impact of these measures on our members,” he said.
Leigh Goodwin, of City banking analysts Fox-Pitt, Kelton, said: “This sounds to me like the end of the line for the Northern Rock. It’s very sad, for in a different market it was a very profitable bank.”
He believes that the branch network will prove popular to other financial institutions and could fetch as much as £5bn, in much the same way that Santander snapped up parts of the Bradford & Bingley, including its 200 branches.
He added: “The branch network and its savings deposits will be more attractive than its assets and mortgage customers. Banks want savings at the moment.
“The mortgage book assets are impaired, they will not achieve full value and may have to be disposed of in a distressed asset sale.
“I doubt the Northern Rock brand will be relaunched. As an entity it’s all over for the Northern Rock.”
A Treasury spokesman said: “There are no plans currently to sell Northern Rock. We have always maintained that any future sale would need to clearly demonstrate value for the taxpayer and maintain financial stability and therefore that any future decisions will not be rushed.
“At this point Northern Rock has successfully paid back a large portion of the Government’s loan and has recently committed to lend more to those seeking mortgages.”
