Northern Rock plc (former London Stock Exchange ticker symbol
NRK) is a British
bank, under public ownership from 2008.
It is
based at Regent
Centre
in Newcastle upon Tyne
, United
Kingdom. Formerly the
Northern Rock Building
Society, the bank was formed in 1997 when the
society floated on the
London Stock Exchange.
History
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 who held savings accounts
and
mortgages. 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
2007–2009, 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.
At 00:01 on 22 February 2008 the bank was
taken into state ownership (see the
Nationalisation of Northern
Rock). The nationalisation was 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. The media also reported cases
where some shareholders had their life savings in the shares, which
were taken from them. The government-appointed Chairman
Ron Sandler assumed the position on 18
February.
On 26 June 2009 the bank confirmed that it was to be split into two
parts, assets and banking.
Operations
Northern
Rock is one of the top five mortgage lenders in the United Kingdom in terms of gross lending.
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.
Location
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. A number of other buildings,
all named after North-Eastern castles are joined to
Baker
Street.
Outside the UK
A
sub-division in Guernsey
was established in February 1996, handling offshore
savings and investment accounts.
Northern
Rock opened a branch in Ireland
on 16 November 1999 and the first branch in
Northern
Ireland
followed on 4 April 2007. The first branch of
the bank opened in Denmark
on 7 February 2007; however as part of the
Government restructuring, the Danish operations ceased on 18 June
2008.
Corporate image
Northern Rock logo used until
2000
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. The
Red Box Design Group designed all the
currently standing buildings at the company's headquarters in
Gosforth and have contributed to many of the other design aspects
of the company, such as the in-branch styling. From 1 October 1997
until the government nationalisation, the bank used the symbol NRK
on the London Stock Exchange.
Board of Directors
Prior to the credit crisis the company had focused on developing
its own staff and most appointments including the Chief Executive,
were made internally.
John Devaney and Simon Laffin joined the board in November 2007,
when Sir Derek Wanless, Nichola Pease, Adam Fenwick and Rosemary
Radcliffe retired as Non-Executive Directors. The Chairman,
Matt Ridley resigned as did the Chief
Executive
Adam Applegarth, although
the latter stayed on in a caretaker role until December 2007. David
Baker and Keith Currie left the board, but remained employed within
the company.
The Chief Executive was Andy Kuipers, who joined the company in
1987, and retired on 31 August 2008. In February 2008,
Ron Sandler was appointed Executive Chairman by
the government. Bryan Sanderson, Sir Ian Gibson, David Jones and
Paul Thompson retired from the board at this time. Gary Hoffman
became Chief Executive of Northern Rock in October 2008. He has
previously been the vice chairman of Barclays and a former Managing
Director of
Barclaycard. With the
appointment of Gary Hoffman, Ron Sandler changed to a Non-Executive
Chairman position.
In January 2009 it was announced that Ann Godbehere would be
leaving her post as Chief Financial Officer at the end of
February.
As of 14 October 2008, the Board of Directors comprised:
- Chief Executive: Gary Hoffman
- Non-Executive Chairman: Ron
Sandler
- Non-Executive Directors: Laurie Adams, Kent Atkinson, Richard
Coates, John Devaney, Bob Davies, Philip Remnant and Tom
Scholar.
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.
In 2005,
to coincide with the Spirit of the Tall Ships Festival, Northern
Rock enlisted the help of Red Box
Interiors to create a temporary art installation at The
Baltic Centre for Contemporary
Art
on the Gateshead
Quay of the Tyne. The art entitled "Northern
Rock @ Baltic" included mobile light stem sculptures and large
scale external graphics.
Northern Rock sponsors the
North East Premier League
competition for recreational
club
cricket. In 2006 Northern Rock sponsored the
All*Star Cup celebrity Golf match, which was
shown on
ITV.
The bank also sponsors a junior golf
tournament, The Rock Junior Golf Festival, held at Matfen Hall
.
In 2007,
almost three weeks before the bank had to appeal to the Bank of
England for an emergency loan, the bank bought the home
ground of Newcastle Falcons Rugby
Club, Kingston
Park stadium
for £15 million. In February 2008, documents
relating to the sale came to light, attracting much criticism that
the purchase has been made at a time of impending crisis. In late
2008 the bank sold Kingston Park Stadium to
Northumbria University for an
undisclosed fee.
It was confirmed on 20 May 2008 that Northern Rock would continue
to sponsor both Newcastle United and the Newcastle Falcons, the
former due to the long term agreement between them and the
club.
Northern Rock Foundation
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. Since the official
launch of the foundation in January 1998, it has steadily grown and
expanded its activities. The Foundation's work is carried out by a
professional staff team of 12 based in Gosforth. Previously in 2007
there had been 25 staff at the foundation. In 2003, along with a
new logo and the introduction of new programmes, the Foundation
moved to a new building – the renovated Old Chapel in Gosforth. At
the end of 2006 the foundation received £28.2 million investment.
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. The Foundation's shares were to be cancelled
and compensated in the same way as those of other shareholders.
£7.3 million was awarded during the first 10 months of 2008, with
an expected further £3.7 million before the end of the year.
Subprime mortgage crisis and nationalisation
On 14
September 2007, the Bank sought and received a liquidity support
facility from the Bank of
England, following problems in the credit markets.
This led to many customers queuing outside branches to withdraw
their savings (a
run on the bank).
Partly as a result of the run, on 22 February 2008 the bank was
taken into state ownership. The
nationalisation was a result of two unsuccessful bids to take over
the bank, neither being able to fully commit to repayment of
taxpayers' money within three years. The Bank is managed at "arms
length" by the government through
UK Financial Investments
Limited.
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. Former
shareholders and hedge funds also took legal action in January 2009
to get a fair level of compensation for their shares; the
shareholders lost the case. They also lost their appeal, but hope
to take the case to the House of Lords.
On 23 February 2009 Northern Rock announced that they would be
offering £14 billion worth of new mortgages, over the next two
years, as a part of their new business plan. This new lending will
be partly funded by an increase in the government loan, a reversal
of previous strategy to pay the loan off as quickly as possible by
actively encouraging mortgage customers to leave when their
mortgage deal matures. The reason for this change being government
policy to increase the availability of credit. This £14 billion
will be split into £5 billion in 2009 and £9 billion in 2010.
On 26 April 2009,
The Times
suggested that Northern Rock will be sold by the Government by the
end of 2009.
Potential buyers include Virgin Money, National Australia Bank, Santander, Blackstone, Tesco
and TowerBrook. Chancellor of the Exchequer
Alistair Darling has stated that he
is in no "hurry" to return the bank back to the private
sector.
On 26 June 2009 the bank confirmed that it was to be split into two
parts, assets and banking. In October the European Commission
waived through plans to split the bank off and sell the "good"
parts off.
See also
References
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