Rivals rocking the boat for Northern Rock's business plan
19 March 2008 / by Rachael Stiles
Northern Rock released its business plan yesterday but to the chagrin of its rivals who believe the Government guarantee has given it an unfair advantage over them.
The business plan, according to Northern Rock, "will set out the basis for the removal of Government support through the creation of a smaller, more focussed, financially viable mortgage and savings bank which will be returned to the private sector."
In order to boost the business while still being able to repay the Bank of England loan and stay within European regulations regarding state aid, Northern Rock will drastically downsize its mortgage business, and hopes to rebuild its savings deposits, which halved when it hit liquidity issues last year, marking the first run on a British bank since Victorian times.
The nationalised bank is currently offering savings products which, at more than six per cent, are competing to be the best in the market, with the added bonus of a Government guarantee for at least three years, making them almost as safe as investing with National Savings and Loan.
Adrian Coles, Director General of the Building Societies Association, said that the release of Northern Rock's business plan did little to quell fears that it would be putting rivals at a disadvantage. "We have only Northern Rock’s guarantee that they will not compete on an unfair basis – this is not good enough and we will look for much more detail on this in the finalised business plan later this month." he said.
"Taxpayers deserve to see as much detail as possible about the plans of the bank that they own. It is unacceptable for Northern Rock to build market share via a combination of artificially high interest rates and Government guarantees to savers."
Northern Rock is also being closely monitored by the union Unite, after the executive chairman Ron Sandler refused to rule out more than 2,000 job losses for its employees by 2011. Unite has said that it will fight any forced redundancies.
The UK Shareholders Association also has a bone to pick with Northern Rock, and has said it will take legal action if necessary in order to obtain fair recompense for its investors who saw their shares taken out of their hands by the Government and almost completely devalued.
The bank intends to scrap unsecured loan products and risky sub prime mortgages, whilst maintaining some prime customers and keeping its 72 branches open. It will also continue to replenish Granite, its controversial £45 billion securitisation vehicle, as required.
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