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| company_name = Northern Rock
| company_name = Northern Rock
| company_logo = [[Image:Northern Rock Logo.png|200px]]
| company_logo = [[Image:Northern Rock Logo.png|200px]]
| company_type = [[Private company|Private]]
| company_type = [[Public company|Public (Nationalisation Pending)]]
| foundation = 1965
| foundation = 1965
| location = [[Gosforth]], [[Newcastle upon Tyne]], [[England]], [[United Kingdom|UK]]
| location = [[Gosforth]], [[Newcastle upon Tyne]], [[England]], [[United Kingdom|UK]]

Revision as of 21:06, 19 February 2008

Northern Rock
Company typePublic (Nationalisation Pending)
IndustryBank
Founded1965
HeadquartersGosforth, Newcastle upon Tyne, England, UK
Revenue£5 billion (2006)
£627 million (2006)
£443 million (2006)
Number of employees
6400
Websitewww.northernrock.co.uk

Northern Rock is a British bank based at Regent Centre near Newcastle upon Tyne in northern England in the United Kingdom. Formerly the Northern Rock Building Society, the bank was formed in 1997 when the society floated on the London Stock Exchange, distributing shares to its members who held savings accounts and mortgages with them. Northern Rock joined the stock exchange as a minor bank and was expected to be taken over by one of its larger rivals, but it has remained independent. In 2000, Northern Rock gained promotion to the FTSE 100 Index, but was demoted back to the FTSE 250 in December 2007[1] and later suspended from the LSE due to the planned government takeover.

On 14 September 2007, the Bank sought and received a liquidity support facility from the Bank of England,[2] following problems in the credit markets caused by the US subprime mortgage financial crisis. On 17 February 2008 it was announced that the bank would be taken into public ownership and trading of shares suspended. The nationalisation was a result of two unsuccessful bids to take over the bank, neither being able to fully commit to repayment of taxpayers' money.[3] The government appointed Chairman is Ron Sandler, who assumed the position on Monday 18 February[4]. There are no plans to change the name of the bank[5].

History

Northern Rock Building Society was formed in 1965 as a result of the merger of Northern Counties Permanent Building Society (established in 1850) and Rock Building Society (established in 1865). Along with many other UK building societies in the 1990s, Northern Rock chose to demutualise and float on the stock exchange in order to better expand their business. Throughout this period a concern against demutualisation was that the assets of a mutual society was built up by its members throughout its history not just the present members who would benefit, and that demutualisation was a betrayal of the community that the societies were created to serve.[6][7][8][9] Northern Rock chose to address these concerns by founding the Northern Rock Foundation.[10]

Location

The 1990s buildings at Regent Centre

The bank is based on a large site at the Regent Centre in Gosforth, Newcastle upon Tyne. It has customer contact centre operations at both Doxford International Business Park in Sunderland and at its head office. The bank is also developing a site at Rainton Bridge. The company is midway through a redevelopment of the Gosforth site, which saw the demolition of the original 1960s tower block during Spring 2006. A new tower block is due to be completed by the end of 2008, to act as the main entrance to the company headquarters.

The Gosforth site currently consists of the Kielder and Prudhoe buildings, completed in the early 1990s, behind which lies the distinctive glass-fronted Alnwick building. The main Atrium reception is adjacent to this, opening out onto the recently completed Baker Street, a large covered mall that houses a restaurant, shop and on-site branch. A number of other buildings, all named after North-Eastern castles are joined to Baker Street.

A sub-division in Guernsey was established in February 1996,[11] handling offshore savings and investment accounts. Northern Rock opened a branch in Ireland on 16 November 1999[12] and a branch in Denmark followed on 7 February 2007.[13] The first branch in Northern Ireland was opened on 4 April 2007.

Corporate image

Northern Rock logo used until 2000

In the year 2000 Northern Rock introduced a new corporate identity consisting of a magenta square containing the company name. This replaced the NR 'blocks' logo. To this day however, some branches still display the old logo. The Northern Rock Foundation also changed its logo in 2003 from the NR 'blocks' inline with the main company, using the same new typeface. The Red Box Design Group have designed all of the currently standing buildings at the company's headquarters in Gosforth[14][15][16][17][18][19] and have contributed to many of the other design aspects of the company, such as the in-branch styling[20].

Business

A typical Northern Rock branch, on Northumberland Street, Newcastle upon Tyne

Northern Rock is one of the top five mortgage lenders in the United Kingdom in terms of gross lending.

As well as mortgages, the bank also deals with savings accounts, current accounts, loans and insurance. The company also promotes secured loans to its existing mortgage customers. The unsecured loans business is administered and underwritten by Ventura based in Leeds. Home and contents insurance is dealt with by AXA whilst Legal & General, whose mortgage book Northern Rock took over, arrange insurance and stock-market-based investments. Payment Protection Insurance (PPI) can be arranged with London-based Cardif Pinnacle.[21]

In 2006 the bank had moved into sub-prime lending via a deal with Lehman Brothers. Although the mortgages are sold under Northern Rock's brand through intermediaries, the risk is being underwritten by Lehman Brothers.[22][23]

Board of Directors

The Chief Executive is Andy Kuipers, who joined the company in 1987. The company is focused on developing its own staff and so, most appointments are made internally. After phase one of the sale process was completed in November 2007, John Devaney and Simon Laffin joined the board, Sir Derek Wanless, Nichola Pease, Adam Fenwick and Rosemary Radcliffe retired as Non Executive Directors, The previous Chief Executive Adam Applegarth resigned but stayed on in a caretaker role until December 2007. David Baker and Keith Currie left the board but remain employed within the company.

As of November 2007, the Board of Directors comprised:[24][25]

  • Chairman: Bryan Sanderson
  • Chief Executive: Andy Kuipers
  • Group Finance Director: David A. Jones
  • Non-Executive Directors: Sir Ian Gibson, Michael J. Queen, John Devaney, Simon Laffin

Sponsorship

The company sponsored many local sports clubs and events, including Newcastle United Football Club,[26] Newcastle Falcons (rugby union), Newcastle Eagles (basketball), Durham and Middlesex County Cricket clubs, professional golfer Paul Eales and the cycling festival Northern Rock Cyclone.[27]

The sponsorship of Newcastle United began in 2003, and was set to expire in 2010.

In 2005, to coincide with the Spirit of the Tall Ships Festival, Northern Rock enlisted the help of Red Box Interiors to create a temporary art installation at The Baltic Centre for Contemporary Art on the Gateshead Quay of the Tyne. The art entitled "Northern Rock @ Baltic" included mobile light stem sculptures and large scale external graphics.[28]

Northern Rock Foundation

The company donates substantial amounts annually to its own charity, the Northern Rock Foundation. The foundation was formed when the company was floated, with an initial donation of 15% of the share capital and a covenant to donate 5% of the company's annual profit thereafter.[29][30] In 2006, Northern Rock was the second largest charitable giver in the FTSE 100 after ITV.[31]

In April 1996, when the Building Society was considering demutualisation, plans were announced by the then chairman, Robert Dickinson, for the creation of the foundation. Since the official launch of the foundation in January 1998, it has steadily grown and expanded its activities. In 2003, along with a new logo and the introduction of new programmes, the Foundation moved to a new building – the renovated Old Chapel in Gosforth.At the end of 2006 the foundation received £28.2 million investment. By the end of 2007 £190 million had been donated to the foundation, by Northern Rock.

Nationalisation will end the covenant requiring Northern Rock to remit a share of profits to the Foundation. Instead, for the next three years the Foundation will receive an annual £15 million payment from Northern Rock, whether it remains publicly-owned or returns to the private sector. The Foundation's shares will be cancelled and compensated in the same way as those of other shareholders.[32]

2007 credit crisis

People queuing outside a branch to withdraw their savings due to fallout from the subprime crisis.

On 13 September 2007, Northern Rock asked the Bank of England, as lender of last resort in the United Kingdom, for a liquidity support facility due to problems in raising funds in the money market to replace maturing money market borrowings.[33] The problems arose from difficulties banks faced over the Summer 2007 in raising funds in the money markets, caused by the subprime crisis in the United States. The bank's assets were always sufficient to cover its liabilities, but it had a liquidity problem because institutional lenders became nervous about lending to mortgage banks following the US sub-prime crisis. Bank of England figures suggest that Northern Rock borrowed £3bn from the Bank of England in the first few days of this crisis.[34]

With shares in Northern Rock plummeting by nearly a third, the British Government moved to reassure investors with the bank, with account holders urged not to worry about the bank going bust. The Treasury select committee chairman John McFall MP said: "I don't think customers of Northern Rock should be worried about their current accounts or mortgages."[35][36]

Northern Rock is not the only British bank to have called on the Bank of England for funds since the sub-prime crisis began[37] but is the only one to have had emergency financial support from the Tripartite Authority (The Bank of England, the FSA and HM Treasury).[38] However, the bank is more vulnerable to a credit crunch as its business model depends on funding from the wholesale credit markets, 75% of its funds coming from this source.[39] In his address to the Treasury Select Committee, Bank of England governor Mervyn King had stated emergency funds would be made available to any British bank that needed it, but at a penalty rate, to ensure that lenders who had made bad lending decisions would suffer disadvantages relative to lenders who had made sensible lending decisions.[40]

On 14 September, the first day branches opened following the news, many customers queued outside branches to withdraw their savings (a run on the bank).[41] It was estimated that £1 billion was withdrawn by customers that day, about 5% of the total bank deposits held by the Northern Rock.[42] In one incident, police were called to the branch in Cheltenham, Gloucestershire when two joint account holders barricaded the bank manager in her office after she refused to let them withdraw £1 million from their account. Their money was held in an internet only account, which they were unable to obtain after the Northern Rock website became inaccessible due to the volume of customers trying to log on.[43]

On 17 September, as worried savers continued to flock to some Northern Rock bank branches to withdraw their savings, it was reported that an estimated £2 billion had been withdrawn since the bank applied to the Bank of England for emergency funds. By early afternoon in London, Northern Rock's shares, which had lost 32% on the previous Friday, fell a further 40% from 438 pence to 263 pence.[44] Later that day, the Chancellor of the Exchequer, Alistair Darling, announced that the British Government and the Bank of England would guarantee all deposits held at Northern Rock.[45] Northern Rock shares rose by 16% after this was announced.

In an interview on BBC Radio 4, Bank of England governor Mervyn King revealed that they had anticipated emergency funding to be in the £20-30bn range.[46]

What we want to do is to give incentives for people to behave properly, so in judging the interest rate at which we lent to Northern Rock we asked ourselves the question: "At what interest rate would they have to pay in borrowing from us today that would make them regret not having taken out an insurance policy as Countrywide did before the 9th of August?"

— Bank of England governor, Mervyn King, BBC Radio 4 – File on 4

In December, the EU regulators approved Britain's actions to provide aid to the Bank by concluding that it was in line with European emergency aid rules.[47]

By January 2008, Northern Rock's loan from the Bank of England had grown to £26bn. On January 11, Northern Rock announced that it had sold its portfolio of lifetime home equity release mortgages to JP Morgan for £2.2bn and that it would use this to pay off a piece of the Bank of England loan.[48][49] On January 15, 2008, a meeting was held at the 11,000 seater Metro Radio Arena to discuss the current situation at the bank; all but one of the proposals put forward by the hedge funds were rejected.

On February 6, the Office for National Statistics announced that it was treating Northern Rock as a public corporation, similar to the BBC and Royal Mail for accounting purposes, causing the loans (approximately £25 billion) and guarantees (approximately £30 billion) extended by the Bank of England and the value of the company's mortgage book (approximately £55 billion), provisionally estimated to total around £100 billion, to be added to the National Debt.[50] Although not technically a nationalisation, the decision effectively acknowledged that, In all but name, Northern Rock is now nationalised.[51] The cost of this support increased the National Debt from £537 billion, or 37.7% of GDP to around 45%,[50] breaking the so-called Golden Rule which sets the Public Sector Borrowing Requirement threshold at below 40%. The figure is the equivalent of £3,000 for every family in Britain, or an increase in the base rate of income tax of 28 pence in the pound[52] There have been no calls on the government guarantees; they are only potential liabilities - there has been no actual cost to the tax payer.

Takeover offers

On 12 October 2007, Virgin Group, announced that they intend to bid for Northern Rock as the lead of a coalition including American giant AIG, turnaround specialist WL Ross and First Eastern Investment. Had the deal been successful, Northern Rock would have been integrated into Virgin Money,[53] as Virgin Bank.[54] It is unclear what role partners will have in the deal. This bid was later approved by the UK Treasury and has been noted as the preferred option.[55] Virgin announced that Peter McNamara, a former Alliance & Leicester managing director, would be responsible for risk management at Northern Rock if its bid succeeds.[56]

The other front runner was an investment company Olivant, headed by the former chief executive of Abbey, Luqman Arnold.[57] Olivant would have kept the Northern Rock brand.[58] By November 17, a total of ten companies had put forward proposals for the bank. Among the other suitors for Northern Rock were private equity firm Cerberus,[59] JC Flowers[60] and Lloyds TSB.[61] In early December JC Flowers, dropped out of the bidding.[62]

Northern Rock announced that all offers had been "materially below" the previous trading value. Alistair Darling said on 19 November that the Government would have to approve or veto any sale, in the interests of taxpayers, depositors and wider financial stability.[63] In December the Government prepared emergency legislation to nationalise the Bank, in the event that the takeover bids fail.[64] On 12 January, 2008, the Treasury recruited Ron Sandler, the former Lloyd's of London Chief Executive, to lead Northern Rock, in the event that the bank is nationalised.[65] If the Bank was to be temporary nationalised, the government would manage the Bank at "arms' length" on a commercial basis, where services for savers and borrowers would not be affected and the company would continue to operate as normal. However nationalisation would also address the future of the Northern Rock Foundation.[66] Alistair Darling rejected the possibility of the Bank being put into administration.

On December 15, Northern Rock hired the bank Goldman Sachs to put together a financing package, to assemble backers and present proposals to its board. This package would be available to any potential bidder for the bank.[67]

The deadline for bids was 4 February 2008, where final bids were expected from Virgin, Olivant and the bank’s management; other bidders could still have expressed interest. Goldman Sachs were likely to contact Cerberus and JC Flowers to see if they would like to rejoin the bidding, now that the situation has materially changed.[68] When a successful proposal has been chosen, it will be put to the European Commission by March 17, which would consider whether it conformed to EU state aid rules.[69] Olivant pulled out of the bidding (but stated that they may still attempt a rescue bid if the Government changed their conditions[70]) on 4 February leaving just the Virgin bid and the in-house bid, led by Paul Thompson and Andy Kuipers[71]

For repayment of the Government loans, there was a proposal to create an 'asset pool' at the bank, of a size greater than the loans. The bidder would have issued bonds against this asset pool, with maturities set inline with the repayment. Proceeds from the bond issue would have also gone to the Government and the bank would have payed for a government guarantee for the bonds to trade in the market at or near prices of similar gilt-edged stocks.[69] This would have replaced the original plan for the bidders to have to find their own investors to cover the first £15bn, which proved impossible, due to the credit crunch.[72] The government would also continue to guarantee the Bank's liabilities, such as savers’ deposits.[69]

Nationalisation

On 17 February 2008, Alistair Darling, the Chancellor of the Exchequer, announced that Northern Rock was to be nationalised[3] claiming that the private bids did not offer "sufficient value for money to the taxpayer" and thus the bank will be brought under a "temporary period of public ownership".[73][74] The government would be the shareholders and manage the Bank at "arms' length" on a commercial basis. Customers are not affected by this change. A Government-appointed arbitration panel will decide on a fair price for the compensation to be offered to investors for their shares.[75] Prior to the markets opening on 18 February, trading in Northern Rock's ordinary and preference shares was suspended.[32] The bill which the Treasury is planning to pass is the Banking (Special Provisions) Bill.

References

  1. ^ Northern Rock drops from FTSE 100, BBC News, 12 December 2007
  2. ^ Liquidity Support Facility for Northern Rock plc - Tripartite Statement, HM Treasury, Bank of England and Financial Services Authority, 14 September 2007
  3. ^ a b Northern Rock to be nationalised, BBC News, 17 February 2008
  4. ^ Rock recovery is Sandler's goal, BBC News, 18 February 2008
  5. ^ Northern Rock chairman Sandler says turnaround to take years Forbes, 18 February 2008
  6. ^ Building societies resist carpetbaggers, BBC News, January 2, 1999
  7. ^ The Hansard, 10 March 1997
  8. ^ The Hansard, 17 March 1997
  9. ^ Anthony Hilton of the Evening Standard on the battle for Standard Life, This is Money, 19 May 2000
  10. ^ "History:Northern Rock Foundation".
  11. ^ About Us, Northern Rock (Guernsey)
  12. ^ Northern Rock celebrates 5th anniversary of Irish launch, Northern Rock Ireland, 16 November 2004
  13. ^ http://www.northernrock.dk/SERVICEMENU/Nyheder/tabid/73/Default.aspx Template:Da icon
  14. ^ Northern Rock Building Society Headquarters 1992, Red Box Architecture
  15. ^ Northern Rock 1994, Red Box Architecture
  16. ^ Northern Rock Campus Development Phase 2, Red Box Architecture
  17. ^ Northern Rock 2005, Red Box Architecture
  18. ^ Northern Rock - Phase 4, Red Box Architecture
  19. ^ Northern Rock Tower 2008, Red Box Architecture
  20. ^ Northern Rock Roll-out, Red Box Architecture
  21. ^ "Pinnacle Insurance".
  22. ^ "Northern Rock ups sub-prime rates". BBC. 24 August 2007. Retrieved 2007-09-17. {{cite news}}: Cite has empty unknown parameter: |coauthors= (help)
  23. ^ "Stock Exchange Announcement Northern Rock PLC: Trading Statement For The 9 Months To 30 September 2006". Northern Rock. 02.10.2006. Retrieved 2007-09-17. {{cite news}}: Check date values in: |date= (help); Cite has empty unknown parameter: |coauthors= (help)
  24. ^ "NORTHERN ROCK PLC BOARD CHANGES" (Press release). London Stock Exchange Regulatory News Service. 16 November 2007.
  25. ^ "Northern Rock Update" (Press release). London Stock Exchange Regulatory News Service. 14 December 2007.
  26. ^ "Magpies extend sponsorship deal". BBC News. 20 April, 2004. {{cite web}}: Check date values in: |date= (help)
  27. ^ "northernrockcyclone.co.uk".
  28. ^ Northern Rock @ Baltic, Red Box Interiors
  29. ^ "About Us". Northern Rock Foundation. Retrieved 2007-09-16.
  30. ^ "Northern Rock squeezes out 2 m charity boost". BBC. Wednesday, 28 January, 1998. Retrieved 2007-09-16. {{cite news}}: Check date values in: |date= (help); Cite has empty unknown parameter: |coauthors= (help)
  31. ^ Top 10 Corporate Foundations, The Guardian
  32. ^ a b Northern Rock plc, HM Treasury, February 17, 2008
  33. ^ Northern Rock asks for Bank help, BBC News, 13 September 2007
  34. ^ £3bn Lent to Northern Rock, Financial Times, 22 September 2007
  35. ^ Northern Rock denies financial problems, ITV News, 13 September, 2007
  36. ^ Thal Larsen, Peter; Hume, Neil (13 September 2007). "Bank of England to bail out Northern Rock". Financial Times. {{cite news}}: Check date values in: |date= (help)
  37. ^ Barclays again taps emergency facility, International Business Times, 31 August, 2007.
  38. ^ Tripartite Authority Announcement re Northern Rock, September 14, 2007
  39. ^ Weakened Northern Rock may face bid, The Daily Telegraph, 11 September, 2007.
  40. ^ King, Mervyn (12 September 2007), "Turmoil In Financial Markets: What Can Central Banks Do ?" (PDF), Treasury Committee {{citation}}: Check date values in: |date= (help)
  41. ^ Customers Ignore Northern Rock's Plea, Sky News, 14 September 2007
  42. ^ More queues outside Northern Rock, BBC News, 15 September 2007
  43. ^ Northern Rock: Businessman barricades in branch manager for refusing to give him £1 million savings, The Mail on Sunday, 15 September 2007.
  44. ^ Northern Rock besieged by savers, BBC News, 17 September 2007
  45. ^ Northern Rock deposits guaranteed BBC News, 17 September 2007
  46. ^ "File on 4" (PDF). Mervyn King Interview. BBC Radio 4. 6 November 2007. {{cite news}}: Check date values in: |date= (help)
  47. ^ EU regulators approve Northern Rock bailout, December 5, 2007, AFP
  48. ^ Northern Rock repays £2bn of £26bn Bank of England loan, The Guardian, January 11, 2008
  49. ^ Sale of Lifetime Mortgage portfolio, Northern Rock, January 11, 2008
  50. ^ a b Nation hit with £100bn Northern Rock debts, The Daily Telegraph, February 8, 2008. Retrieved February 8, 2008.
  51. ^ Treasury suffers from Northern Rock debt, The Daily Telegraph, February 8, 2008. Retrieved February 8, 2008.
  52. ^ Northern Rock puts billions down the drain, The Daily Telegraph, February 8, 2008. Retrieved February 8, 2008.
  53. ^ Virgin pursues Northern Rock deal, BBC News, 12 October 2007
  54. ^ Take deal or else, Northern Rock shareholders to be told today, January 21, 2008, The Times
  55. ^ Virgin favourite in Rock auction BBC News, 25 November 2007
  56. ^ Virgin consortium strengthens Northern Rock bid, Forbes, 18 January 2008
  57. ^ Abbey boss swoops on ailing Rock The Times, November 11, 2007
  58. ^ Olivant Advisors Ltd - Statement re Northern Rock, Reuters, 7 December 2007
  59. ^ Virgin to name Northern Rock team. The Guardian, October 26, 2007
  60. ^ J.C. Flowers Considers Bid for British Lender Northern Rock, The Wall Street Journal, October 26, 2007
  61. ^ Cameron criticises Rock 'failure', BBC News, 13 January 2008
  62. ^ JC Flowers seen exiting N. Rock race, December 7, 2007 Reuters
  63. ^ Northern Rock sale faces Treasury veto. Accountancy Age, 20 November 2007.
  64. ^ Northern Rock Reportedly Faces Nationalization By February, December 5, 2007, CNN.com
  65. ^ Treasury lines up new Rock boss, BBC News, 12 January, 2008
  66. ^ Northern Rock, HM Treasury, 21 January 2008
  67. ^ Goldman hired to aid Nothern Rock rescue, Reuters December 15, 2007
  68. ^ Northern Rock shares surge on bid hopes, The Telegraph, 21 January 2008
  69. ^ a b c Government seeks share in any Rock upside, FT.com, 21 January 2008
  70. ^ Olivant not ruling out return to Northern Rock auction, Forbes, 5 February 2008
  71. ^ Olivant pulls out of Northern Rock bid battle, The Guardian, 4 February 2008
  72. ^ Q&A: The Northern Rock deal explained, The Times, 21 January 2008
  73. ^ Northern Rock to be nationalised, February 17 2008, The Guardian
  74. ^ Chancellor to nationalise Northern Rock, February 17, 2008, The Times
  75. ^ Q&A: what now for Northern Rock?, The Times, February 17, 2008
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