It will be "some years" before Northern Rock has sufficiently recovered to be
returned to the public sector, the man chosen by the Government to lead the
bank's turnaround admitted today.
Speaking at his first press conference as Northern Rock’s executive chairman,
Ron Sandler, said: "It is clearly unrealistic to be talking about months.
We're clearly talking about some years".
Mr Sandler said that he did not intend to run down the bank into "extinction"
but said that how hard Northern Rock competed for new business would be
dictated by as-yet unknown European Union rules, based in its principles for
state aid.
"The bank will have to operate according to a set of rules set in Brussels,"
Mr Sandler said. "Precisely what those constraints will be are not yet
known. We'll submit plans to Brussels and told how we can operate. Within
those constraints, we'll compete vigorously," he said.
Northern Rock has until March 17 pay back £25 billion of emergency funding
authorised by the European Commission for no more than six months.
If the bank cannot pay back the money, the British Government must ask the EU
executive to authorise restructuring aid.
To avoid competing unfairly with rival high-street banks, Mr Sandler will
almost certainly be prevented from seeking new business for the Rock, which
employs 6,000 staff, meaning the bank will only service existing customers,
causing it to shrink rapidly.
A management-led team that attempted to buy the Rock had said that, under its
own plans to downsize the bank, as many as 30 to 40 per cent of staff, equal
to 2,400 jobs, would not be replaced as they left over the next three years.
Mr Sandler said today that he had already met staff members and planned to
address them on a larger scale, but refused to be drawn on possible
redundancies.
Mr Darling said earlier today, in a joint press conference with Prime
Minister, Gordon Brown: “The conditions under which Northern Rock will do
business have to be approved under the (EU) state aid rules, which are
deliberately designed to stop there being unfair competition from something
that has the state standing behind it.”
He added: “I am very aware of the banks’ concerns and I want to be fair by
them. But I think they also recognise that we have got to have a situation
where Northern Rock can continue to trade”.
Mr Sandler said today that he would retain the Northern Rock name. "This is a
very sound and well-managed institution," he said.
The former Lloyd's of London chief executive also said that he planned a
four-part recovery plan for the bank.
This will include ensuring Northern Rock is "operating on sound principles";
to make sure that the Tripartite's needs are being met; to put in place a
new management team and to "create a business that's profitable and can be
returned to the private sector".
Mr Sandler will remain as executive chairman until a new management team was
selected and the bank back on the road to recovery, and then would step back
into a non-executive chairman role. At that time, his £90,000-per-month
flat-rate would be changed to a performance-related payment plan, he said.
Gordon Brown insisted today that Mr Darling had made the "right decisions" in
his five-month attempt to the bank's problems and that the Chancellor’s
stewardship of the UK economy had enabled it to avoid the economic problems
to have hit parts of the EU and the US. He also said that London's
reputation as a global financial centre had been damaged by the Northern
Rock crisis.
"I don't accept that London or Britain has been uniquely affected by world
events," Mr Brown said.
The Prime Minister added that the Chancellor would have been wrong to
nationalise Northern Rock last September, without trying to find a private
sector buyer for the bank.
Graham Goddard, deputy general secretary of the Unite union, said that he
would see urgent clarification on what nationalisation meant for the Rock's
employees. "Employees will be even more anxious about their long-term
security, terms and conditions and pensions arrangements," he said.
Doug Henderson, the Labour MP for Newcastle Upon Tyne North, said that jobs in
the constituency could only be saved if the new public sector management of
the Rock rebuilt a viable business. "I know the work people will be up for
this challenge [and] they and the new management should be given all the
support and time to get on with the job," he said.
The Chancellor will present the legislation he requires to undertake the
nationalisation to the House of Commons this afternoon. Until then, there is
unlikely to be further information on the future of the bank.
Investors were this morning waiting for Alistair Darling to reveal more
details about how compensation might be awarded to shareholders for the loss
of their investment.
Northern Rock's board, which, like Sir Richard Branson, had hoped to rescue
the bank, expressed its disappointment over the Chancellor's decision to
reject a proposal for its management to take control of the business.
In its first statement on the bank's nationalisation since yesterday's
surprise announcement by Mr Darling, Northern Rock said that it had hoped
that one of the private bidders for the bank would succeeded and was "very
disappointed that the Government concluded that it was unable to provide
funding to support a private sector solution".
The bank reiterated that customers would be unaffected by the nationalisation,
with all branches open for normal business hours.
The Chancellor said this morning that Northern Rock remained up for sale,
despite its move into public ownership. Mr Darling said: "If people have got
proposals for us, we'll listen to them but they have to pass a simple test -
what's the best value for the British taxpayer?"
However, last night, furious Northern Rock's shareholders said that the
Chancellor's decision to nationalise the troubled bank had effectively
rendered their shares worthless. Both institutional and retail shareholders
are likely to take legal action if they consider the compensation on offer
insufficient.
Trading in Northern Rock shares was suspended this morning. Bankers involved
in attempts to sell the bank described Mr Darling’s decision to abandon the
auction as an “astonishing failure”. One said: “Darling has to go.”
The UK Shareholders’ Association, which represents 100,000 small shareholders
in Northern Rock, said that Mr Darling’s decision to abandon negotiations
with the two commercial bidders was akin to theft.
Roger Lawson, director of the association, said: “It seems the only reason
that the Government has chosen nationalisation is because ‘it offers better
value to the taxpayers’. This is equivalent to a thief telling you it offers
better value to him to steal from you than to enter into a commercial
transaction with you.”
The association vowed to use any legal option to block nationalisation. SRM
Global, the hedge fund that is Rock’s largest shareholder, has already
threatened to sue the Government if it does not offer investors compensation
of 400p a share. SRM and the RAB hedge fund have invested £150 million in
Rock for a stake of nearly 20 per cent.
One institutional investor said: “This is clearly disappointing and shouldn’t
have been necessary.”
The Chancellor said that he would appoint an independent arbitration panel to
value the bank and calculate any compensation due. This process could take
months and Mr Darling has already told investors that the valuation would be
conducted as if Rock had never received government assistance.
Shareholders said that without the Government guarantee on accounts or the
estimated £25 billion emergency loan from the Bank of England, Rock is
effectively bust, rendering their investments valueless.
Peter Montagnon, of the Association of British Insurers, which represents
Britain’s largest shareholders, said that nationalising Rock could make it
harder for UK banks to raise money by issuing corporate bonds.
He said: “We will have to look for any arrangements for compensating
shareholders and it is also important that the rights of bondholders are
respected. If not, we could see a reduced willingness in the bond market to
fund banks. We will be watching very closely what happens to bondholder
rights.”
Angela Knight, chief executive of the British Bankers’ Association, said that
Mr Darling’s dithering over Rock had harmed the reputation of the UK’s
financial services sector. “A decision should have been reached much
earlier, as this has not helped the perception of the industry,” she said.
The Chancellor rejected rival offers by the Branson consortium and the Rock
management because he believed that they posed too high a risk to taxpayers
and involved too much public subsidy for funding the bank in the next three
years.
Virgin’s offer, he complained, would offer a return for the Government only
after the bank was worth £2.7 billion, while the management team’s proposal
required the Government to maintain its guarantee of Northern Rock’s
deposits for too long.
Sir Richard Branson said that his Virgin group would make no further attempt
to rescue the bank after his £1.25 billion offer was rejected by the
Government. Sir Richard said: “We put all the resources of Virgin’s senior
management team on this for five months and, we believe, had a very strong
proposal.”
A source with knowledge of the consortium’s bid said that the £2.7 billion
target was not over-optimistic, given that the Virgin consortium planned to
inject £1.25 billion into Rock and that Rock has a present market
capitalisation of almost £400 million.
Sources close to the management said it is to stay on for a handover to Mr
Sandler.
Virgin and the management will have their bid costs met by the Government up
to £5 million, but both are thought to have run up higher bills.
At £90,000 a month I'm not surprised Sandler says the job will take years.
Neil McF, Southampton, England
Convenient when your on 90k a month eh!
I guess as they say its all about who you know..
Rob, ex Notts UK, Vancouver BC
One of your readers says "Estate agents are to blame for the runaway housing market. "
Yeah, estate agents have been acting in the interests of sellers; the folks who pay them.
Scandalous, isn't it? Clearly we need a new system, one which deprives house owners of the fruits of their investment.
jon livesey, Sunnyvale, CA/USA
So, is he going to nationalise Alliance and Leicester and Bradford and Bingley before they go bust, or after?
eric campbell, harrogate, uk
" Mr Sandler said today that he would retain the Northern Rock name. "This is a very sound and well-managed institution," he said."
He must be joking!
Neil, Columbia, SC
"However, Mr Darling said that he was confident that, once "the company is refocused and the housing market comes back", Northern Rock would be returned to private ownership."
We have to wait until the housing market comes back? Well, it usually goes in 18-year cycles and we've just hit the peak of prices so we'll have to wait at least 10 years before prices start to approach 2007 values again. From that point of view, a 'temporary' arrangement could last a very long time indeed.
MB , Edinburgh,
What has happened isn't the fault of Northern Rock itself, therefore trying to find the trouble within the bank will achieve very little.
The global financial crisis is not entirely to blame either. We must take responsibility for the failure of our own nation's housing market since house prices here have run away from real values.
The reason for this is the current way property is marketed by estate agents.
This needs a complete and urgent overhaul. We owe it to all house owners so that further unsustainable price booms and busts can be avoided.
As a retired estate agent I can speak out, without fear of recrimination.
Estate agents are to blame for the runaway housing market.
A new and viable alternative to using estate agents is being offered by Property Match (UK).

It's Internet based and conceived by a small team of professionals headed by a property surveyor who knows the workings of the housing market from the inside.
Peter Hendry, Nottingham, Nottinghamshire
will the job losses start with the board of directors CEO's and all top brass who a\re more than likley responsible for this mess somehow i doubt it. Instead they will continu to get paid and get the Bonus of £100,000 al paid by the goverment. who are the benefit scroungers now. The bank shluld have gone bust.
imacomputerbuddie, isle of cumbrae, norht ayrshire
I agree with the views that it is fundamentally wrong to prop up a private business, built upon private cash, with taxpayers money. This is a business which has become unviable due to a combination of poor management decisions and the conditions of the global market. How many billions did UK governments pump into failing UK manufacturing companies that folded leaving thousands of redundancies in places like the West Midlands and Sheffield? None.
N Whiteley, Sheffield,
I find the Tory response rather amusing... none of the commercial buyers were offering to repay the interest on the huge sum of money loaned to Northern Rock by the government and if Mr Darling had allowed a commercial sale on those terms, he would have been criticised for flushing billions of taxpayers' money down the drain!
Although I accept something should have been done sooner, nationalisation is probably the best solution, but then again, I don't have shares in Northern Rock to lose!
Steven, Bradford,
So the shareholders are to sue as they believe they have been robbed. Northern Rock required new loans to fund their business so the question has to be asked - if the business was as good as the shareholders claim why didn't they group together and restore confidence by lending their own money without guarantees to the bank. If they had the crisis of confidence would have been solved.
Chris, Worthing,
Nationalisation-are we in the UK or Venezuela?
Simon, Selborne, UK
I wonder if the government would have even thought about nationalisation had a building society in the south become financially unstable, one that was not at the centre of an enclave of labour MP'swho might loose votes as a result of the collapse?
Tony Smith, The Lizard, Kernow
I cannot understand why the shares were not suspended when the run occured. As a result, there has been a false market in these shares for months. Had the shares been suspended, the hedge funds would have been unable to buy into the Rock and the inevitable ensuing litigation could have easily been avoided.
In terms of what the Rock is worth, do not forget that it wrote 1 in 5 of all first mortgages in the first half of 2007 at loan to values of up to 125%. Although the majority of the book is probably fine, a sizeable chunk is no doubt quite toxic
David Hodgson, Cockfosters,
Dear Oliver who bought the 4000 shares last week, you should have listened to Stanley!
Dodo Dodo, Yorkshire,
As I said earlier here comes a return to nationalisation through the backdoor!
Financial institutions have forgotten that their businesses have consequences for ordinary people. They get lost in the poker game.
They should have a pool that like the insurance groups can compensate small investors who get burnt by bad advice.
The government can set that up - but to step in and save Northern Rock is ridiculous and sets a dangerous precedence.
Stephen Pain, Odense, denmark
I find it galling that on the one hand the Government stood by and watched Rover go into administration, whilst on the other, having prevaricated for five months it has chosen to gamble £90 billion of taxpayers’ money propping up Northern Rock.
Nicholas Wake, Kenilworth, Warwickshire
Can we now once and for all please drop the "New" when refering to the labour government.
This is "Old"labour writ large with everything that implies.
This is the old unreconstructed socialist class warriors on the move again rising up like the dinosaurs that they are.
This nationalisation proves that all the spin and crap of the last 11 years has not changed a thing.
Welcome back COMRADES!.
David Knight, Dammam, Saudi Arabia
Oliver Pinto, if I was you I'd be way too embarrassed at my stupidity to recount it here. I suppose the fact that the share price hovered around £1 for so long when none of the private "rescuers" was offering anything like as much shows that you are not alone. If you've got any cash left I've got these amazing magic beans....
Neil McF, Southampton, England
This is a disaster for Northern Rock. It will be in run off mode, not taking on any new business and just gradually turning its assets into cash. Eventually Northern Rock will shrink to nothing. Of course the government will get its cash back and make a profit. It was the government’s cack handling of Northern Rock’s liquidity problem that turned it into fatal disaster and the first bank run in living memory.
We can now see how competent the government really are. It makes the City of London look like a banana republic, with the only country to suffer the humiliation of a bank run and now nationalisation. Many jobs will be lost in the North East, the sad thing is this could have be avoided. By blocking the Lloyds TSB offer, by publishing Northern Rock’s drawing from The Bank of England, and dithering for five months (as markets deteriorated) the government is primarily responsible for Northern Rock’s demise.
I have no love for Branson, but even the Virgin solution would have be
Jeffrey Ellis, Zürich,
So it seems that we have an new Private Equtiy kid on the block. Leaverage the business, rob the existing shareholders, then mark it up and sell it on a few years down the track and it's all perfectly legal. Viva Hugo Darling !
Chris, Haslemere, Surrey
Let's hope that tax payers money is not spent on the (unlucky) shareholders of Northern Rock. They bought shares in a company that, had it not been for government funds, would have gone bankrupt - unfortunate, but a risk that all shareholders face.
Richard, Manchester,
This proposed abuse of taxpayers money is a national disgrace. Northern Rock had a poor business model and should be allowed to go to the wall.
Shareholders are as much gamblers as those who "invest" in horses. We should not be subsidising people who gamble and lose.
Redbin Dippers, Lake,
High streets are full of shops selling mortgages. Not one provides access to equity capital with a firm commitment to see an inventor safely capitalised for the long term development of his or her business vision. £100 billion invested in new entrepreneurs and inventors would have transformed our industrial base. In concentrating upon a failed bank, the government shows that it has no interest in the difficulties the British inventor faces with no access to capital from reliable LONG TERM national sources. Venture capital takes control of inventions so they can be rolled forward as fast as possible into a Merger or Acquisition, M&A. The VC refuses to invest for the long term so that the VC’s exit strategy can work fast and profitably as also the M&A. It has been precisely this that has driven the creation of the unstable financial condition of the “Northern Rocks†who create vapour-ware funds to keep the whole thing going. Nationalising vapour-ware production is the final stupidity.
Chris Coles, Medstead, Alton, United Kingdom
Oliver Pinto
Don't you think in retrospect it would have been wiser to place your bet on something a little less risky? Especially as you were (very unwisely) betting your life savings. Nobody stole from you - you gambled and you lost.
Why is it that nobody ever seems willing to take responsibility for their own actions these days???
Louise, London,
It seems to me that some shareholders in Northern Rock want the best of both worlds. Keep the profits when they do well, but get someone else to bail them out when they do badly.
If shareholders cannot take the loss, they should not be investing in the stockmarket in the first place.
SRB, Abergele, UK
While clearly the Northern Rock crises has been a fiasco of gargantuan proportions I am intrigued to understand why shareholders led by RAB and SRM feel they have the right to sue the Government now that the company has been nationalised. It seems to me these institutions are long and wrong and using the threat of legal action and potential compensation to try and extradite themselves from the mire they now find themselves in.
It is absolutely clear that without Government support this company would have gone into receivership and shareholders would have received nothing. That is the risk you take being an equity investor!
Perhaps Northern Rock should have been allowed to fail last year. That it hasn’t leaves Nationalisation as the best outcome for tax payers who are effectively the new equity holders in this business not RAB or SRM.
Paying compensation to Northern Rock shareholders such as RAB and SRM would be the biggest travesty of all and not something that tax payers should be burdened with.
Ben, London, United Kingdom
Oliver Pinto, if a little over qualified, seems like a good candidate for the next Chancellor.
David Masu, Zürich,
My company gives me shares just because I happen to have a job. I believe Tesco and others do the same. I wonder if check-out workers count as 'Shiney (sic) suited fat-cats'. Do you have a pension? What do you think that invests in? Shares? Almost certainly. Hedge funds? Quite possibly.
My company pension scheme invests in a hedge fund that shorted Northern Rock well over a year ago. It's made a fortune, which some of you will no doubt think is A Bad Thing. However, when pension funds all around the country are struggling with large and volatile deficits, it's quite a big relief to our members.
Paul, Reading,
I have lost endless amounts of money on plc's that have gone bust. Shareholders if they have a case it is against the Directors that were in charge during this sorry affair, not the Government who in this case were the 'White Knight' via the British taxpayers money! Sorry shareholders you took the risk and lost.
Can I apply for the jobs at £90k and £75k per month or was it more jobs for the boys?!
Andy Moore, Birmingham, West Midlands
Are you serious Oliver ,you bought shares in Northern rock only a week ago ,in Northern Rock? You spent around 4k of money you couldnt afford to lose , in Northern Rock ? Dont you think that was a little unwise ?A building society deposit account is a far safer option for such important and needed savings .
Gordon Lonsdale, Northampton, uk
Oliver bought 4,000 shares last week because he thought the "money to be safe"??? Well, sorry, Ollie but that could never have been the case. It was a gamble. You might have made a lot of money, but it turns out you won't.
Just like the hedge fund companies that took the same gamble - it's not people like these who will get sympathy from the public. They took the chance, lost, end of match.
Chris, Northampton, England
I presume you wouldn't of complained if your 4000 shares went up in price ?. Read the small print , the value of your shares an go up or down in value. If you wanted a sure bet you should of put your savings that you work 12 hours a day for in in a northern rock savings account. - If you speculate to earn a quick buck, I fail to see why I should care- you pays your money you takes your choice, So stop whinging
Keith Smith, Northampton, UK
Oliver, grow up! You didn't buy shares in Northern Rock expecting your savings to be safe, you bought them gambling on the possibility of Virgin winning the race to run the bank and hoping to rake in a healthy profit. If you invested all your savings, as you suggest, then you were extremely foolish. You gambled and lost and now you are sulking.
Robert Tolhurst, Taipei, Taiwan
Well Oliver you took a punt and lost, dont expext sympathy do you,
Alan, Coventry, UK
A Labour government acting to protect tax payers interests! Surely that is a contradiction.
roger sykes, christchurch,
Nationalisation!!!!! As Riccardo, not unreasonably, has exclaimed about.
"Nationalisation was where the state took over control of the main industries in Britain (coal, steel, electricity, rail etc) and where any profit made by these industries went to the country and not to share holders."
So, you 'Shiney Suited Fat-Cats', beware - it's all happening again!
The first organisation to be nationalised was the Bank of England in 1946. This had been owned by private individuals since 1694.
Ian Gibb, Ashtead, Surrey
oliver pinto, manchester
If you buy shares in a company and the shares lose value, nobody has stolen from you. You speculated (badly) and you could have won or lost - you lost.
In any case, you don't yet know what value your shares will have after the review, so you don't even know if you have lost.
Please get your facts straight.
S Williams, London,
NATIONALISATION!!!!!!!!
failure of Brown's decade as Chancellor!
Shame for UK economy.
England will not be an "example" of successful economy anymore!
riccardo, brussels,
There are few points which comes to every stakeholders mind and the government has to address these points now before proposing any value to shareholders:
1) The Treasury acted as "lender of last resort" and as a central bank they have a duty to provide financial stability in the market by injecting liquidity. They are also charging interest at a penal rate and are secured against the good quality mortgage book of NR. How come over the top they are asking for a profit sharing from Northern Rock if it turns arounds its fortune either through a private buyer or by the management buyout.
2) The bank (NR) has delayed its Final results, now it is a time to publish its audited final accounts publically.
After addressing the above points then Treasury can justify whatever they are offering to the shareholders.
Jamal Gurwara, London, UK
i bought 4000 shares in northern rock 1 week ago expecting my money to be safe because i thought that nationalisation would be bad for everyone hence it being the very last option. now im going to loose all my savings that i work 12 hours a day for? thanks brown and darling for steealing yet more money from your employers (the british public)
good luck with the next election when ever that might be?
but then again you didnt win the last one so what difference does it make
oliver pinto, manchester,