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Past may hold the key to Northern Rock's future

NORTHERN Rock should be reincarnated as a building society rather than being sold off to ease Government debt, an influential report last night said.

Northern Rock
Northern Rock

NORTHERN Rock should be reincarnated as a building society rather than being sold off to ease Government debt, an influential report last night said.

The proposals from the Building Societies Association - which have won backing from both MPs and senior figures in the business world – say re-mutualisation of the bank will help the national economy and make it less likely to fall victim to another credit crunch.

Former Newcastle Building Society chief executive Bill Midgley last night welcomed the report, saying it would lead to greater lending into the mortgage market and would support North East jobs.

And with ministers pressing ahead with moves to sell off the Rock to recoup the billions of pounds of public money spent propping it up, a number of the region’s MPs at the Labour Party conference in Brighton also called for the re-mutualisation idea to be looked at.

Mr Midgley, also a former chairman of the British Chambers of Commerce, said: "This is a good proposition, a brave move and one that should be taken on board.

"It will be good in that it will help retain jobs in the North East at one of the region’s largest employers.

"Current proposals to split the Rock into bits will lead to job losses in the region."

The Government is currently awaiting approval from the European Commission on proposals to split Northern Rock into two and sell of what it can.

Mr Midgley continued: "Northern Rock has a lot of good assets and it will need these assets if it is to become commercially viable again.

"The taxpayer will have to wait a while longer for their money to be returned if its re-mutualised. But Northern Rock was once a successful and profitable business and there is no reason why that should not be the case once more."

Northern Rock was nationalised in February 2008 after being thrown a £25bn lifeline by the Treasury to stop it going bankrupt. It currently owes the exchequer nearly £11bn.

But in a report for the Building Societies Association, Oxford University professor Jonathan Michie said: "We must not allow the UK’s financial services sector to return to the ‘business as usual’ model that has proved so costly to the economy and public finances.

"Already we are seeing a return to the bonus culture. This is fuelled by profits boosted by the increased market power of banks. It is vital that the banks face strong competition from mutual building societies. That would also reduce the risk of the credit crunch being repeated. Re-mutualising Northern Rock would thus deliver to consumers and taxpayers."

Speaking at the Labour Party conference last night, Newcastle North MP Doug Henderson said: "I think it’s an interesting idea and it’s worth looking at. I would like to see some details."

And Sedgefield MP Phil Wilson said: "I think it’s something well worth thinking about. It seems to me the majority of banks that got into problems used to be building societies."

Mr Michie is calling for UK Financial Investments Limited, which manages public stakes in banks, to conduct a feasibility study into how to turn the Rock back into a mutual.

He has won backing from John McFall, chairman of the influential Treasury Select Committee, who said: "This is a timely contribution to the debate on the future of our financial services sector.

"If ever there was a time for an expanded mutual sector, it’s now. We desperately need to restore faith in financial services in this country."

Page 3: A success story that veered into disaster

A success story that veered into disaster

ON October 1, 1997, 400,000 people in the region and 885,000 nationally got free shares worth £2,350 when the Northern Rock de-mutalised.

Along with many other mutuals, the Rock wanted more freedom to trade like a bank, to grow and broaden its business, saying it needed access to cheaper money from the capital markets to help it grow.

Within 10 years later the Rock had grown to be the biggest mortgage lenders in the country. But its expansionist policy landed it in trouble when the money markets froze in the summer of 2007 and it was unable to secure capital.

With concerns growing about its financial stability and the value of some of its mortgage assets, including loans to 125% of the value of some properties, customers began queuing at its doors to get their money back.

This forced the Government to step in with a £25bn lifeline leading to the Rock’s eventual nationalisation.

Now the Government and Rock management have drawn up plans to break it into two and sell off what it can, which could lead to a dramatic reduction in its current 4,000 strong workforce.

A re-mutualisation could anchor the Rock in the North East, saving hundreds of jobs and leading to increased lending into the economy.

Page 4: Speculation over the Newcastle

Speculation over the Newcastle

THERE was further speculation about the future of the Newcastle Building Society last night, with one report claiming it could soon be the subject of a takeover bid.

It has been a tough year for the Newcastle after it emerged it had over £40m tied up in failed Icelandic banks. This led to it making a loss in 2008 and axing 150 jobs. However last month it said it had returned to the black and expected to recover over 80% of the Icelandic bank money.

One report yesterday suggested the National Australia Bank was looking at buying smaller UK building societies and mentioned the Newcastle or the Chelsea Building Society.

Newcastle Building Society is also believed to be talking to advisers at boutique investment bank Lexicon about a possible debt swap that could boost its capital ratios.

Earlier this year there was speculation that the Skipton wanted to take over the Newcastle, with Newcastle boss Colin Seccombe saying the reports were untrue.

The building society sector has struggled, with a number of mutuals being taken over.

Nobody was available for comment at the Newcastle Building Society yesterday.

 

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