Northern Rock More Mortgages Plus Losses Equals Bonuses
24 February 2009 / by Rachael Stiles
Northern Rock is the latest bank to be criticised for planning to pay bonuses to its staff, even as it is expected to announce losses of £1.4billion.
Going against Gordon Brown, who has said that any banks which have accepted taxpayers’ money should not pay bonuses, Northern Rock has said it is going to reward its staff, including senior executives, for the year when the bank was nationalised and has racked up huge losses.
The recipients of the bonuses will include about 400 junior managers, and up to 100 executives, despite the fact that Northern Rock will require additional cash from the taxpayer to fund its new mortgages. No executives or senior management will receive cash bonuses and their pay will be frozen.
Front-line employees will receive a 10 per cent bonus, based on the fact that the bank successfully reached performance targets – namely, the repayment of a significant portion of its loan from the Government.
Around 4,400 employees – with a combined average salary of about £21,000 – will get a bonus.
Alistair Darling has been criticised for allowing the bonuses to go ahead, saying that he is in agreement with the bank’s reasoning.
“It is essential that the Company can recruit and retain good people,” the bank said in a statement.
The announcement follows the revelation by the Chancellor that Northern Rock is going to boost its mortgage lending by £14billion this year, diverging from the previous plan which was to shrink the bank down to half its size.
Since it was nationalised, many Norther Rock mortgages have been withdrawn and the bank has been redeeming existing ones, encouraging its customers to go elsewhere when it came time to renew their mortgage.
This policy has enabled the bank to repay £18billion of its £27billion loan to the taxpayer, with the intention of repaying its debt in full by 2012. This will now have to wait as the bank is planning a £14billion package of new mortgages over the next two years, to assist the Government in getting cash flowing again in the property market. In 2008, Northern Rock wrote just £3billion of new mortgages.
With about £9billion of its loan still outstanding, Northern Rock will effectively be using taxpayers’ money to create new mortgages, which the Chancellor said on the Today Programme is an important as part of a series of measures to “rebuild the banking system for the future.”
“This is good news for customers of Northern Rock and for consumers generally, who will benefit from an increase in mortgage availability,” the bank said.
“The new lending proposition means that the Company’s existing mortgage customers will not be actively encouraged to leave when their mortgage deal matures and they will have more choice.”
Chief executive of Northern Rock Gary Hoffman, said that “This is a very positive outcome for the Company, the taxpayer and, of course, consumers seeking a mortgage.”
It represents “another important step in the ongoing rehabilitation of the Company, returning to financial viability and ultimately returning to the private sector.” he said.
Full year results for Northern Rock will be announced in March.
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