Banking News Northern Rock's Downfall Benefits City Firms 1320
Northern Rock’s downfall benefits City firms
01 April 2008 / by Rachael Stiles
A pot of £41.3 million will be shared by a posse of investment banks, law firms and public relations which offered their services to the struggling bank in an effort to bring it back from the brink.
Goldman Sachs will be the biggest winner, claiming £12.5 million for its ‘advice’, which ultimately ended up in it opting for the nationalisation of what was Britain’s fifth biggest bank before the credit crisis took its toll.
Northern Rock will also be shelling out for the fees accrued by Richard Branson’s Virgin Group and investment firm Olivant, while they both vetted for a majority stake in the bank before being disappointed when it was taken into public ownership.
Executive Chairman Ron Sandler has ruffled feathers by approving a huge payout to ex-boss Adam Applegarth which is expected to total £1 million in severance and pension pay; he will also retain the concessionary staff mortgage rate on his 2.5 million mansion, despite being the main architect of Northern Rock’s disastrous business plan.
Meanwhile, thousands of British families with Northern Rock mortgages will lose their homes this year as they fail to keep up with their soaring repayments. Those on 125 per cent mortgages will fare the worst, as all such deals have now been withdrawn across the market, so they will either have to accept Northern Rock’s inflated rates or accept defeat when they cannot refinance after coming off fixed term deals.
In the past 12 months, the number of Northern Rock’s mortgage customers having their houses repossessed shot up by 234 per cent, and this figure is only expected to climb further throughout the year as more people find that they cannot keep up with the rising cost of living and drastically increased mortgage rates.
Northern Rock’s annual report, released yesterday, revealed a loss of £167.6 million in 2007 compared to profits of £627 million in 2006. Ron Sandler said that “The 2007 results reflect the impact of deteriorating market conditions and the liquidity and funding constraints experienced in the second half of the year by the Company.”
“Looking ahead,” he continued, “we have developed a business plan that we believe will help drive the bank back towards profitability, and ensure it has a sustainable future and remains an important employer in the North East.”
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