Financial expert reviews the Rock

Feb 27 2008 By Justin Urquhart Stewart

OH, what a chorus of half-baked, ill-informed wingers. Since the decision to "nationalise" the Rock last Sunday, we seem to have suffered the rants and ravings of anybody with a view about the apparent impending demise of this institution.

With all the reliability of playground bullies, it appears that many were happy to give a good kicking to this wounded and pained beast that lay crouching on the ground. Perhaps then it is a good time to separate some of the facts from the fiction.

Let me be clear though, the management of the Northern Rock are not wholly innocent of causing the devastating damage to their institution. Their policy of funding the expansion of their mortgage book from the well of the wholesale markets was always going to be a strategy with some fundamental risks – especially if that well ever dried up!

However, they were certainly not alone in this type of funding; many other highly respected banks had followed this same path – but none quite to the same extent. Additionally, the credit crunch that drained the well was not foreseen by most of the analysts looking at the Rock and still seemingly most bullish even though the share price was well over £10. The Rock didn’t cause the credit crunch – it was a victim of it. The toxic bonds emanating from the sewers of the investment bankers were the catalysts that resulted in the "perfect storm" that was to be the Rock’s nemesis.

Despite this though, the Rock has a lot to be proud of. For the past few decades it had been recognised as a successful innovator in the mortgage market, producing highly competitive products which were popular with both clients and intermediaries alike. Add to this the reputation for their operations in the North East, which were highly regarded for their service and efficiency in an industry often renowned for the opposite; a great credit to the staff and management of these operations.

I remember when the business was nicknamed as the bank that used to say "no", not to be negative, but to underline their reputation as not being like other banks that tried to do everything for everyone – usually rather poorly. They prided themselves on primarily just doing mortgages – very well.

Also, to coincide with my trip to the North East for the AYP Financial Wise Investment Event in Hexham today, may I remind you of the Foundation. When the Rock floated on the market, this was seen by some as an anachronism. Public companies building in a stream of profits to their own foundation to do good works? Whilst other companies have their charitable donations, the Rock insisted on having a programme designed to give back to its community, harking back to its original foundation as a mutual. There are many clubs and enterprises that owe a great debt back to their benevolent neighbour.

So, after credit crunch, the abject failure of our re-engineered banking regulation, and months of political dithering, the Rock looks in a sorry and chipped state. The arrival of highly talented Ron Sandler will be a turning point, and one which I hope will provide the opportunity for an "NR2" to be carved out of the granite that was at the heart of the old Northern Rock.