UK Banks

Type – Public ownership

Industry – Bank

Founded – 1965 2010 (Current bank)

Headquarters – Northern Rock House, Gosforth, Newcastle upon Tyne, England, UK Area served UK, Ireland

Key people – Ron Sandler (Non-Executive Chairman)

Services – Banking, Mortgages

Revenue – £5 billion (2006)

Operating income – £627 million (2006)

Profit – £443 million (2006)

Owner(s) – Her Majesty’s Government

(UKFI) Employees – ~4500 (as of September 2008)

Website – www.northernrock.co.uk

Brief History Of Northern Rock

Formerly the Northern Rock Building Society, the bank was formed in 1997 when the society floated on the London Stock Exchange. Since 1 January 2010 the Northern Rock name has referred to two companies – this bank, Northern Rock plc, and a separate asset company, Northern Rock (Asset Management) plc.

Northern Rock Building Society was formed in 1965 as a result of the merger of two North East Building Societies; the Northern Counties Permanent Building Society (established in 1850) and the Rock Building Society (established in 1865). During the 30 years that followed, Northern Rock expanded by acquiring 53 smaller building societies, most notably the North of England Building Society in 1994.

Along with many other UK building societies in the 1990s, Northern Rock chose to demutualise and float on the stock exchange, to be able to expand their business more easily. Throughout this period a concern against demutualisation was that the assets of a mutual society were built up by its members throughout its history, not just by current members, and that demutualisation was a betrayal of the community that the societies were created to serve.

Northern Rock chose to address these concerns by founding the Northern Rock Foundation. At its Stock Exchange flotation Northern Rock distributed shares to members with savings accounts and mortgage loans. It joined the stock exchange as a minor bank and was expected to be taken over by one of its larger rivals, but it remained independent.

In 2000, Northern Rock gained promotion to the FTSE 100 Index, but was demoted back to the FTSE 250 in December 2007 and later suspended from the LSE due to the bank’s nationalisation.

On 14 September 2007, during the financial crisis of 2007–2010, the Bank sought and received a liquidity support facility from the Bank of England, following problems in the credit markets caused by the US subprime mortgage financial crisis. The bank was nationalised at 00:01 on 22 February 2008 as a result of two unsuccessful bids to take over the bank, neither being able to fully commit to repayment of taxpayers’ money.

In doing so the Government effectively took ownership away from its shareholders, and as of October 2009 without reimbursement.  On 1 January 2010 the bank was split into two parts, assets and banking.

 Northern Rock has been one of the top five mortgage lenders in the United Kingdom in terms of gross lending according to Council of Mortgage Lenders statistics. As well as mortgages, the bank also deals with savings accounts, loans and insurance. The company also promotes secured loans to its existing mortgage customers. The unsecured loans business is administered and underwritten by Ventura based in Leeds.

Home and contents insurance is dealt with by AXA whilst Legal & General, whose mortgage book Northern Rock took over, arrange insurance and stock-market-based investments. Payment Protection Insurance (PPI) can be arranged with London-based Cardif Pinnacle.

In 2003, to free capital for its rapid growth in mortgage lending, the bank sold its credit card business to The Co-operative Bank for a profit of more than £7 million. Until November 2007 Northern Rock continued to sell credit cards under their own brand through The Co-operative Bank; the decision to stop was made before the 2007 crisis.

In 2006 the bank had moved into sub-prime lending via a deal with Lehman Brothers. Although the mortgages were sold under Northern Rock’s brand through intermediaries, the risk was being underwritten by Lehman Brothers.

Locations

The bank is based on a large site at the Regent Centre in Gosforth, Newcastle upon Tyne. It has customer contact centre operations at both Doxford International Business Park in Sunderland and at its head office. The bank developed a site at Rainton Bridge, which it sold to Npower.

Gosforth site Northern Rock has recently completed the redevelopment of the Gosforth site, Northern Rock House, which saw the demolition of the original 1960s tower block during Spring 2006. A new tower block, simply known as The Tower, was completed in November 2008, originally intended to create 1500 jobs, and act as the main entrance and focal point of the company headquarters.

This will now also likely be sold or leased as the additional space has become surplus to requirements. The local council, Newcastle City Council, are to buy the building for £22 million, and lease it to a green support services company, eaga.

The Gosforth site currently consists of the Kielder and Prudhoe buildings, completed in the early 1990s, behind which lies the distinctive glass-fronted Alnwick building. The main Atrium reception is adjacent to this, opening out onto Baker Street, a large covered atrium that houses a restaurant, shop and on-site branch.

Outside the UK A sub-division in Guernsey was established in February 1996, handling offshore savings and investment accounts.

Rebranding

In 2000 Northern Rock introduced a new corporate identity consisting of a magenta square containing the company name. This replaced the NR ‘blocks’ logo. To this day however, some branches still display the old logo. The Northern Rock Foundation also changed its logo in 2003 from the NR ‘blocks’ inline with the main company, using the same new typeface.

Sponsorship

The company sponsored many local sports clubs and events, including Newcastle United Football Club, Newcastle Falcons (rugby union), Newcastle Eagles (basketball), Durham and Middlesex County Cricket clubs, professional golfer Paul Eales and the cycling festival Northern Rock Cyclone. The sponsorship of Newcastle United began in 2003, and was set to expire in 2010. The current five year deal from 2005 to 2010 was worth £25 million.

The company donates substantial amounts annually to its own charity, the Northern Rock Foundation. The foundation was formed when the company was floated, with an initial donation of 15% of the share capital and a covenant to donate 5% of the company’s annual profit thereafter.  In 2006, Northern Rock was the second largest charitable giver in the FTSE 100 after ITV. In April 1996, when the Building Society was considering demutualisation, plans were announced by the then chairman, Robert Dickinson, for the creation of the foundation.

By the end of 2007 £190 million had been donated to the foundation, by Northern Rock. Nationalisation ended the covenant requiring Northern Rock to remit a share of profits to the Foundation. Instead, for the next three years the Foundation was to receive an annual £15 million payment from Northern Rock, whether it remained publicly owned or returned to the private sector.

Current Operations

The bank planned to repay the government debt within three to four years; primarily by encouraging mortgage customers to take their mortgage to another lender. Costs were also reduced by reducing numbers of staff.

As of 3 March 2009 the bank was repaying the loan well ahead of target, owing a net balance of only £8.9 billion of the loan which stood at £26.9 billion at the end of 2007. By October customers appeared to be regaining confidence in the bank, when it emerged that there had been a surge in the number of new accounts which had been opened.

People appeared to see the Northern Rock as a safe place to put their money, given the current status as a nationalised bank which cannot fail.

Potential buyers for the bank include Virgin Money, National Australia Bank, Santander, Blackstone, Tesco and TowerBrook.

In July 2010 it was reported that a consortium of City executives were gathering to place a bid for Northern Rock. The bank was split into two parts, assets and banking on 1 January 2010.

In addition to the sale of the bank there are plans which could turn the Northern Rock back into a building society.