Nationalisation of Northern Rock - AbsoluteAstronomy.com

In 2008 the Northern Rock
Northern Rock
Northern Rock plc is a British bank, best known for becoming the first bank in 150 years to suffer a bank run after having had to approach the Bank of England for a loan facility, to replace money market funding, during the credit crisis in 2007. Having failed to find a commercial buyer for...

bank was nationalised by the British Government, due to financial problems caused by the subprime mortgage crisis

Subprime mortgage crisis

The U.S. subprime mortgage crisis was one of the first indicators of the late-2000s financial crisis, characterized by a rise in subprime mortgage delinquencies and foreclosures, and the resulting decline of securities backed by said mortgages....

. In 2010 the bank was split into two parts (assets

Northern Rock (Asset Management)

Northern Rock plc is a British asset holding and management company which was split away from the Northern Rock bank in 2010. It is currently under public ownership, due to the bank's nationalisation in 2008...

and banking) to aid the eventual sale of the bank back to the private sector.

On 14 September 2007, the Bank sought and received a liquidity support facility from the Bank of England

Bank of England

The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694, it is the second oldest central bank in the world...

, following problems in the credit markets, during the current financial crisis. 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.

On 17 November 2011 it was announced that Virgin Money were going to buy Northern Rock for £747 million, from UK Financial Investments Limited

UK Financial Investments Limited

UK Financial Investments Ltd is a company set up in November 2008 by the UK Government to manage its shareholding in banks subscribing to its recapitalisation fund. They include Lloyds Banking Group , Royal Bank of Scotland Group and Northern Rock...

(UKFI).

Emergence

On 12 September 2007, Northern Rock asked the Bank of England, as lender of last resort

Lender of last resort

A lender of last resort is an institution willing to extend credit when no one else will. The term refers especially to a reserve financial institution, most often the central bank of a country, intended to avoid bankruptcy of banks or other institutions deemed systemically important or 'too big to...

in the United Kingdom, for a liquidity support facility due to problems in raising funds in the money market to replace maturing money market borrowings. The problems arose from difficulties banks faced over the summer of 2007 in raising funds in the money market

Money market

The money market is a component of the financial markets for assets involved in short-term borrowing and lending with original maturities of one year or shorter time frames. Trading in the money markets involves Treasury bills, commercial paper, bankers' acceptances, certificates of deposit,...

. The bank's assets were always sufficient to cover its liabilities, but it had a liquidity problem because institutional lenders became nervous about lending to mortgage banks following the US sub-prime crisis. Bank of England figures suggest that Northern Rock borrowed £3 billion from the Bank of England in the first few days of this crisis.

Government intervention

With shares in Northern Rock plummeting by nearly a third, the British Government moved to reassure investors with the bank, with account holders urged not to worry about the bank going bust. The Treasury select committee chairman John McFall MP said: "I don't think customers of Northern Rock should be worried about their current accounts or mortgages

Mortgage loan

A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan...

."

Northern Rock is not the only British bank to have called on the Bank of England for funds since the sub-prime crisis began but is the only one to have had emergency financial support from the Tripartite Authority (The Bank of England, the FSA

Financial Services Authority

The Financial Services Authority is a quasi-judicial body responsible for the regulation of the financial services industry in the United Kingdom. Its board is appointed by the Treasury and the organisation is structured as a company limited by guarantee and owned by the UK government. Its main...

and HM Treasury

HM Treasury

HM Treasury, in full Her Majesty's Treasury, informally The Treasury, is the United Kingdom government department responsible for developing and executing the British government's public finance policy and economic policy...

). However, the bank was more vulnerable to a credit crunch as its 'high risk' business model

Business model

A business model describes the rationale of how an organization creates, delivers, and captures value...

depended on funding from the wholesale credit markets, 75% of its funds coming from this source. In his address to the Treasury Select Committee, Bank of England governor Mervyn King

Mervyn King (economist)

An ex-officio member of the Bank's interest-rate setting Monetary Policy Committee since its inception in 1997, Sir Mervyn is the only person to have taken part in every one of its monthly meetings to date. His voting style is often seen as "hawkish", a perspective that emphasises the dangers of...

had stated emergency funds would be made available to any British bank that needed it, but at a penalty rate, to ensure that lenders who had made bad lending decisions would suffer relative to lenders who had made sensible lending decisions.

In December, the EU regulators approved Britain's actions to provide aid to the Bank by concluding that it was in line with European emergency aid rules.

Run on the bank

On Friday 14 September 2007, the first day branches opened following the news, many customers queued outside branches to withdraw their savings (a run on the bank

Bank run

A bank run occurs when a large number of bank customers withdraw their deposits because they believe the bank is, or might become, insolvent...

). This bank run was not the traditional form, where depositors withdraw money in a snowball effect, leading to a liquidity crisis; instead, it occurred in the aftermath of the liquidity crisis. It was estimated that £1 billion was withdrawn by customers that day, about 5% of the total bank deposits held by Northern Rock. In one incident, police were called to the branch in Cheltenham

Cheltenham

Cheltenham , also known as Cheltenham Spa, is a large spa town and borough in Gloucestershire, on the edge of the Cotswolds in the South-West region of England. It is the home of the flagship race of British steeplechase horse racing, the Gold Cup, the main event of the Cheltenham Festival held...

, Gloucestershire

Gloucestershire

Gloucestershire is a county in South West England. The county comprises part of the Cotswold Hills, part of the flat fertile valley of the River Severn, and the entire Forest of Dean....

, when two joint account holders barricaded the bank manager in her office after she refused to let them withdraw £1 million from their account. Their money was held in an internet-only account, which they were unable to access after the Northern Rock website failed due to the volume of customers trying to log on. Journalists such as the BBC's Robert Peston

Robert Peston

Robert Peston is a British journalist. Since February 2006, he has been the Business Editor for BBC News. He became known to a wider public with his reporting of the late-2000s financial crisis, especially with his scoop on the Northern Rock crisis.-Early life and education:Peston is the son of...

, who broke the news on his blog, have been seen as one of the main causes of the bank run.

On Monday 17 September, as worried savers continued to flock to some Northern Rock bank branches to withdraw their savings, it was reported that an estimated £2 billion had been withdrawn since the bank applied to the Bank of England for emergency funds. By early afternoon in London, Northern Rock's shares, which had lost 32% on the previous Friday, fell a further 40% from 438 pence to 263 pence.

Later that day, the Chancellor of the Exchequer, Alistair Darling

Alistair Darling

Alistair Maclean Darling is a Scottish Labour Party politician who has been a Member of Parliament since 1987, currently for Edinburgh South West. He served as the Chancellor of the Exchequer from 2007 to 2010...

, announced that the British Government and the Bank of England would guarantee all deposits held at Northern Rock. Northern Rock shares rose by 16% after this was announced.

Stabilisation

The announcement by the Chancellor showed its intended effects the next day, as the queues outside Northern Rock's branches gradually disappeared. In addition, Northern Rock had a series of adverts published in major UK newspapers to reaffirm that their customers' money was safe.

In an interview on BBC Radio 4

BBC Radio 4

BBC Radio 4 is a British domestic radio station, operated and owned by the BBC, that broadcasts a wide variety of spoken-word programmes, including news, drama, comedy, science and history. It replaced the BBC Home Service in 1967. The station controller is currently Gwyneth Williams, and the...

, Bank of England governor Mervyn King

Mervyn King (economist)

revealed that they had anticipated emergency funding to be in the £20–30bn range.

Boardroom changes

Matt Ridley

Matthew White Ridley, FRSL, FMedSci is an English journalist, writer, biologist, and businessman.-Career:...

was forced to resign as chairman in 2007, having been blamed in parliamentary committee hearings for not recognising the risks of the bank's financial strategy and thereby "harming the reputation of the British banking industry."

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 Chief Executive Adam Applegarth

Adam Applegarth

Adam J. Applegarth was the Chief Executive Officer of the Gosforth, Newcastle upon Tyne based Northern Rock bank, one of the first victims of the so-called subprime mortgage crisis...

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 after the departure of Applegarth was Andy Kuipers, who joined the company in 1987, and later left on 31 August 2008.

Growth of Bank of England loan

By January 2008, Northern Rock's loan from the Bank of England had grown to £26bn. On 11 January, Northern Rock announced that it had sold its portfolio of lifetime home equity release mortgages to JP Morgan for £2.2bn and that it would use this to pay off a piece of the Bank of England loan.

On 6 February, the Office for National Statistics

Office for National Statistics

The Office for National Statistics is the executive office of the UK Statistics Authority, a non-ministerial department which reports directly to the Parliament of the United Kingdom.- Overview :...

announced that it was treating Northern Rock as a public corporation, similar to the BBC and Royal Mail

Royal Mail

Royal Mail is the government-owned postal service in the United Kingdom. Royal Mail Holdings plc owns Royal Mail Group Limited, which in turn operates the brands Royal Mail and Parcelforce Worldwide...

for accounting purposes, causing the loans (approximately £25 billion) and guarantees (approximately £30 billion) extended by the Bank of England and the value of the company's mortgage book (approximately £55 billion), provisionally estimated to total around £100 billion, to be added to the National Debt. Although not technically a nationalisation, the decision effectively acknowledged that "In all but name, Northern Rock is now nationalised".

The addition of this borrowing to the Government's totals increases the National Debt from £537 billion, or 37.7% of GDP to around 45%, breaking the so-called Golden Rule

Golden Rule (fiscal policy)

The Golden Rule is a guideline for the operation of fiscal policy. The Golden Rule states that over the economic cycle, the Government will borrow only to invest and not to fund current spending. In layman's terms this means that on average over the ups and downs of an economic cycle the government...

which sets the Public Sector Borrowing Requirement

Public sector borrowing requirement

Public sector borrowing requirement is the old name for the budget deficit in the United Kingdom. The budget deficit has been renamed to the public sector net cash requirement to avoid confusion with net borrowing....

threshold at below 40%. The figure is the equivalent of £3,000 additional borrowing for every family in Britain. In the 2008 Budget

Government budget

A government budget is a legal document that is often passed by the legislature, and approved by the chief executive-or president. For example, only certain types of revenue may be imposed and collected...

, the Chancellor of the Exchequer

Chancellor of the Exchequer

The Chancellor of the Exchequer is the title held by the British Cabinet minister who is responsible for all economic and financial matters. Often simply called the Chancellor, the office-holder controls HM Treasury and plays a role akin to the posts of Minister of Finance or Secretary of the...

announced that the government would issue £14 billion of gilts

Gilts

Gilts are bonds issued by certain national governments. The term is of British origin, and originally referred to the debt securities issued by the Bank of England, which had a gilt edge. Hence, they are called gilt-edged securities, or gilts for short. The term is also sometimes used in Ireland...

in order to cover the Northern Rock debt.

Handling of the crisis

On 26 March the Financial Services Authority

Financial Services Authority

released an internal report into the failings over handling the problems at Northern Rock. "They found that their supervision of the bank had not been carried out to a standard that is acceptable". The previous FSA review had taken place in February 2006. In the light of these failings at Northern Rock, the FSA announced that they would overhaul their own staffing and systems. The FSA internal report also concluded that ultimately the blame for the collapse of Northern Rock should sit at the feet of the bank's senior management. "The boards and managements of regulated firms carry the primary responsibility for ensuring their institutions' financial soundness," the FSA said. The British Bankers' Association

British Bankers' Association

The British Bankers’ Association is the trade association which represents the banks operating within the United Kingdom.-History:It was set up in 1919. In 1972 it accepted foreign banks...

(BBA), the UK banking body, agreed.

In May 2009 the Financial Times
Financial Times
The Financial Times is an international business newspaper. It is a morning daily newspaper published in London and printed in 24 cities around the world. Its primary rival is the Wall Street Journal, published in New York City....

reported that banking regulators had been examining "war games

Business War Games

Business war gaming or business wargaming is an adaptation of the art of simulating moves and counter-moves in a commercial setting. Unlike military war games, or fantasy war games which go back hundreds of years to the days of Prussia and H.G...

" as early as 2004, which dealt with possible turmoil in the mortgage markets. HBOS

HBOS

HBOS plc is a banking and insurance company in the United Kingdom, a wholly owned subsidiary of the Lloyds Banking Group having been taken over in January 2009...

and Northern Rock are thought to have featured in these predictions.

Commencing in October 2007, the All Party Commons Treasury Select Committee undertook a report into the failure of Northern Rock. The Committee held several televised meetings, in which they called witnesses from the former Board of Northern Rock, the Bank of England, the Treasury, and the regulatory bodies. The report was detailed, and concluded that "the (former) Directors of Northern Rock were the principal authors of its difficulties" :-
The directors of Northern Rock were the principal authors of the difficulties that the company has faced since August 2007. It is right that members of the Board of Northern Rock have been replaced, though haphazardly, since the company became dependent on liquidity support from the Bank of England. The high-risk, reckless business strategy of Northern Rock, with its reliance on short- and medium-term wholesale funding and an absence of sufficient insurance and a failure to arrange standby facility or cover that risk, meant that it was unable to cope with the liquidity pressures placed upon it by the freezing of international capital markets in August 2007. Given that the formulation of that strategy was a fundamental role of the Board of Northern Rock, overseen by some directors who had been there since its demutualisation, the failure of that strategy must also be attributed to the Board. The non-executive members of the Board, and in particular the Chairman of the Board, the Chairman of the Risk Committee and the senior non-executive director, failed in the case of Northern Rock to ensure that it remained liquid as well as solvent, to provide against the risks that it was taking and to act as an effective restraining force on the strategy of the executive members.

Financial performance

Prior to the subprime mortgage crisis the bank was part of the FTSE 100 Index

FTSE 100 Index

The FTSE 100 Index, also called FTSE 100, FTSE, or, informally, the footsie , is a share index of the 100 most highly capitalised UK companies listed on the London Stock Exchange....

, but was demoted back to the FTSE 250

FTSE 250 Index

The FTSE 250 Index is a capitalisation-weighted index consisting of the 101st to the 350th largest companies on the London Stock Exchange. Promotions to and demotions from the index take place quarterly in March, June, September and December...

in December 2007. The shares were later delisted.

On 31 March the bank released its annual report for 2007, it showed a loss of £167 million. The former boss, Adam Applegarth

Adam Applegarth

Adam J. Applegarth was the Chief Executive Officer of the Gosforth, Newcastle upon Tyne based Northern Rock bank, one of the first victims of the so-called subprime mortgage crisis...

received a £760,000 (£63,333 a month) payoff. The report also outlined further details of their proposed business plan.

On 5 August the bank announced that it had made a loss of £585.4m for the first 6 months of the year and that £9.4bn of a loan from the Bank of England had been paid back, reducing the amount owed to £17.5bn.

Virgin

On 12 October 2007, Virgin Group

Virgin Group

Virgin Group Limited is a British branded venture capital conglomerate organisation founded by business tycoon Richard Branson. The core business areas are travel, entertainment and lifestyle. Virgin Group's date of incorporation is listed as 1989 by Companies House, who class it as a holding...

announced that it intended to bid for Northern Rock as the lead partner in a coalition including American giant AIG

AIG

AIG is American International Group, a major American insurance corporation.AIG may also refer to:* And-inverter graph, a concept in computer theory* Answers in Genesis, a creationist organization in the U.S.* Arta Industrial Group in Iran...

, turnaround specialist WL Ross and First Eastern Investment. Had the deal been successful, Northern Rock would have been integrated into Virgin Money

Virgin Money

Virgin Money is a UK-based financial services company owned by the Virgin Group and founded by Sir Richard Branson in March 1995. It was originally known as Virgin Direct, and pioneered index tracking by launching a value Personal Equity Plan into the market. In the 2000s Virgin Money expanded its...

as Virgin Bank.

It is unclear what role partners would have had in the deal. This bid was later approved by the UK Treasury and had been noted as the preferred option. Virgin announced that Peter McNamara, a former Alliance & Leicester

Alliance & Leicester

Alliance & Leicester was a former UK-based bank and PLC, which in later years operated as a trading name of Santander UK before being rebranded as Santander. Alliance & Leicester was legally acquired in May 2010 by Santander UK, and was fully incorporated by 2011...

managing director, would be responsible for risk management at Northern Rock if its bid succeeds.

Other bidders

The other front-runner was an investment company Olivant, headed by the former chief executive of Abbey

Abbey (bank)

Abbey National plc was a UK-based bank and former building society, which latterly traded under the Abbey brand name. It became a wholly owned subsidiary of Grupo Santander of Spain in 2004, and was rebranded as Santander in January 2010, forming Santander UK along with the savings business of the...

, Luqman Arnold. Olivant would have kept the Northern Rock brand. By 17 November, a total of ten companies had put forward proposals for the bank. Among the other suitors for Northern Rock were private equity firm Cerberus

Cerberus Capital Management

Cerberus Capital Management, L.P. is one of the largest private equity investment firms in the United States. The firm is based in New York City, and run by -year-old financier Steve Feinberg. Former U.S...

, JC Flowers

JC Flowers

J.C. Flowers & Co. is a private equity investment firm, focused on investments in the financial services sector. The firm, founded in 2001, is based in New York City and run by billionaire J. Christopher Flowers, a former Goldman Sachs partner....

and Lloyds TSB

Lloyds TSB

Lloyds TSB Bank Plc is a retail bank in the United Kingdom. It was established in 1995 by the merger of Lloyds Bank, established in Birmingham, England in 1765 and traditionally considered one of the Big Four clearing banks, with the TSB Group which traces its origins to 1810...

. In early December JC Flowers, dropped out of the bidding.

In March 2009, it was revealed that Lehman Brothers

Lehman Brothers

Lehman Brothers Holdings Inc. was a global financial services firm. Before declaring bankruptcy in 2008, Lehman was the fourth largest investment bank in the USA , doing business in investment banking, equity and fixed-income sales and trading Lehman Brothers Holdings Inc. (former NYSE ticker...

and Bradford & Bingley

Bradford & Bingley

Bradford & Bingley plc is a British bank with headquarters in the West Yorkshire town of Bingley. In 2008, partly due to the credit crunch, the bank was nationalised and in effect split into two parts; the mortgage book remained with the now publicly owned Bradford & Bingley plc, and the deposits...

had tabled bids for Northern Rock in December 2007; both of these bidders later fell victim themselves to the banking crisis. Terra Firma Capital Partners

Terra Firma Capital Partners

Terra Firma Capital Partners Ltd is a leading U.K.-based private equity firm, best known for its failed investment in British music company EMI. Financier Guy Hands founded the firm in 2002 through the spin-off of Nomura Principal Finance Group...

, a private equity company, also wanted to purchase some of Northern Rock's prime assets.

Bids rejection

Northern Rock announced that all offers had been "materially below" the previous trading value. Alistair Darling said on 19 November that the Government would have to approve or veto any sale, in the interests of taxpayers, depositors and wider financial stability.

Possible nationalisation

In December the Government prepared emergency legislation to nationalise the Bank, in the event that the takeover bids fail. On 12 January 2008, the Treasury recruited Ron Sandler

Ron Sandler

-Early life:Sandler was born in Bulawayo, Southern Rhodesia in 1952 and has an undergraduate degree in engineering from Queens' College, Cambridge and an MBA from Stanford University.-Career in the financial sector:...

, the former Lloyd's of London

Lloyd's of London

Lloyd's, also known as Lloyd's of London, is a British insurance and reinsurance market. It serves as a partially mutualised marketplace where multiple financial backers, underwriters, or members, whether individuals or corporations, come together to pool and spread risk...

Chief Executive, to lead Northern Rock, in the event that the bank was nationalised. If the Bank was to be temporarily nationalised, the government would manage the Bank at "arm's length" on a commercial basis, where services for savers and borrowers would not be affected and the company would continue to operate as normal. However nationalisation would also address the future of the Northern Rock Foundation. Alistair Darling rejected the possibility of the Bank being put into administration

Administration (insolvency)

As a legal concept, administration is a procedure under the insolvency laws of a number of common law jurisdictions. It functions as a rescue mechanism for insolvent entities and allows them to carry on running their business. The process – an alternative to liquidation – is often known as going...

In-house proposal

On 15 December, Northern Rock hired the bank Goldman Sachs

Goldman Sachs

The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...

to put together a financing package, to assemble backers and present proposals to its board. This package would be available to any potential bidder for the bank. The in-house bid was led by Paul Thompson and Andy Kuipers.

Final bids

The deadline for bids was 4 February 2008, where final bids were expected from Virgin, Olivant and the bank’s management; other bidders could still have expressed interest. Goldman Sachs were likely to contact Cerberus and JC Flowers to see if they would like to rejoin the bidding, now that the situation has materially changed. When a successful proposal has been chosen, it will be put to the European Commission by 17 March, which would consider whether it conformed to EU state aid rules. Olivant pulled out of the bidding (but stated that they may have still attempted a rescue bid if the Government changed their conditions) on 4 February leaving just the Virgin bid and the in-house bid.

For repayment of the Government loans, there was a proposal to create an 'asset pool' at the bank, of a size greater than the loans. The bidder would have issued bonds against this asset pool, with maturities set inline with the repayment. Proceeds from the bond issue would have also gone to the Government and the bank would have paid for a government guarantee for the bonds to trade in the market at or near prices of similar gilt-edged stocks. This would have replaced the original plan for the bidders to have to find their own investors to cover the first £15bn, which proved impossible, due to the credit crunch. The government would also continue to guarantee the Bank's liabilities, such as savers’ deposits.

Nationalisation

On 17 February 2008, Alistair Darling

Alistair Darling

, the Chancellor of the Exchequer

Chancellor of the Exchequer

, announced that Northern Rock was to be nationalised claiming that the private bids did not offer "sufficient value for money to the taxpayer" and thus the bank was to be brought under a "temporary period of public ownership".

The government is the sole shareholder through UK Financial Investments Limited

UK Financial Investments Limited

, and the Bank is managed at "arm's length" on a commercial basis by an independent board under Ron Sandler

Ron Sandler

. Customers are not affected by this change.

A Government-appointed arbitration panel will decide on a fair price for the compensation to be offered to investors for their shares. Prior to the markets opening on 18 February, trading in Northern Rock's ordinary and preference shares on the London Stock Exchange

London Stock Exchange

The London Stock Exchange is a stock exchange located in the City of London within the United Kingdom. , the Exchange had a market capitalisation of US$3.7495 trillion, making it the fourth-largest stock exchange in the world by this measurement...

was suspended. The legal authorisation for the nationalisation is the Banking (Special Provisions) Act 2008

Banking (Special Provisions) Act 2008

The Banking Act 2008 is an Act of the Parliament of the United Kingdom that entered into force on the 21 February 2008 in order to enable the UK government to nationalise high-street banks under emergency circumstances by secondary legislation...

, which also allows for the nationalisation of other banks if necessary. At 00:01 on 22 February Northern Rock was formally nationalised.

In November 2008 the government set up a new company, UK Financial Investments Limited

UK Financial Investments Limited

, to manage their shareholdings in Northern Rock and Bradford & Bingley

Bradford & Bingley

. On 10 March 2009 the Office of Fair Trading

Office of Fair Trading

The Office of Fair Trading is a not-for-profit and non-ministerial government department of the United Kingdom, established by the Fair Trading Act 1973, which enforces both consumer protection and competition law, acting as the UK's economic regulator...

published their report on the impacts of public support for Northern Rock on competition in financial services. The OFT concluded that "public support for Northern Rock did not, during that period, have a significantly adverse impact on competition."

Boardroom changes

In February 2008, Ron Sandler

Ron Sandler

was appointed Executive Chairman by the government. Bryan Sanderson, Sir Ian Gibson

Ian Gibson (businessman)

Sir Ian Gibson , is a British businessman and a former non-executive director of Northern Rock, a bank in the United Kingdom, at the time of the its nationalisation after the first bank run in over a century...

, David Jones and Paul Thompson resigned 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

Barclaycard

Barclaycard, part of Barclays Retail and Business Banking, is a global payment business. The Barclaycard was the first credit card introduced in the UK, coming into service in 1966. It enjoyed a monopoly until the introduction of the Access card in 1972....

. With the appointment of Gary Hoffman, Ron Sandler changed to a Non-Executive Chairman position. On 4 November 2010 Hoffman left the bank to move to NBNK

NBNK

NBNK Investments plc is a financial investment company formed by Lord Levene and a consortium of senior business figures in 2010. The aim of the company is to build a new large UK retail bank primarily through the acquisition of other banks.- History :...

; Sandler reverted to his Executive Chairman position.

In October 2008, the post-nationalisation management of Northern Rock decided not to bring legal action for negligence against the directors in charge during the crisis, including former chief executive Adam Applegarth, citing insufficient grounds to do so. There will be no action either against the auditors, PricewaterhouseCoopers

PwC

PricewaterhouseCoopers is a global professional services firm headquartered in London, United Kingdom. It is the world's largest professional services firm measured by revenues and one of the "Big Four" accountancy firms....

.

In January 2009 it was announced that Ann Godbehere would be leaving her post as Chief Financial Officer at the end of February.

Some former directors of the bank have been fined and banned by the FSA including former deputy chief executive David Baker £504,000 for misreporting mortgage arrears data and former credit director Richard Barclay was fined £140,000 for failing to ensure accurate financial information. In April finance director David Jones quit the bank after reports that the FSA were to further investigate the activities at the bank prior to the nationalisation. In July Jones was fined and banned by the FSA.

Offshore mortgage book

It has subsequently become known that the best book of Northern Rock's mortgage business, comprising mortgages worth £47 billion - some 40% of the company's assets - had been transferred to a Channel Islands

Channel Islands

The Channel Islands are an archipelago of British Crown Dependencies in the English Channel, off the French coast of Normandy. They include two separate bailiwicks: the Bailiwick of Guernsey and the Bailiwick of Jersey...

based company called Granite

Granite (Northern Rock vehicle)

Granite is a securitisation vehicle created by the British bank Northern Rock, based in Guernsey.The purpose of Granite is to parcel up the mortgages provided by the bank and sell the value to investors...

, together with an ongoing obligation to continue to supply business. Failure to maintain the arrangement could cost a reported £5 billion. As is common practice in bank securitisations, Granite was set up as a charitable trust with any residue on winding-up to benefit a small charity, Down's Syndrome North East. Despite having assets worth an estimated £45 billion, Granite has never made a donation to the charity, because it remains in business.
In late 2008, Northern Rock, advised by Credit Suisse

Credit Suisse

The Credit Suisse Group AG is a Swiss multinational financial services company headquartered in Zurich, with more than 250 branches in Switzerland and operations in more than 50 countries.-History:...

, decided to let Granite go into run-off, meaning that Northern Rock the bank will no longer supply it with fresh mortgages and bondholders will be repaid as old mortgages expire.

Debt reduction strategy

On 18 March, Northern Rock announced the measures that it would be taking to reduce the government debt within three to four years. The bank is to cut around a third of jobs (2,000) by 2011; on 1 May the bank confirmed that they would be initialising talks with the unions and that most of the job losses would be later in 2008.

As of 30 September 2008 the bank is repaying the loan well ahead of target, owing a net balance of only £11.5 billion of the loan that stood at £26.9 billion at the end of 2007.

On 21 October Standard & Poor's

Standard & Poor's

Standard & Poor's is a United States-based financial services company. It is a division of The McGraw-Hill Companies that publishes financial research and analysis on stocks and bonds. It is well known for its stock-market indices, the US-based S&P 500, the Australian S&P/ASX 200, the Canadian...

Ratings Services revised their outlook on Northern Rock to stable from positive; they also affirmed the bank's long and short-term 'A/A-1' counterparty credit ratings. The Press Association

Press Association

The Press Association is the national news agency of the United Kingdom and Ireland, supplying multimedia news content to almost all national and regional newspapers, television and radio news, as well as many websites with text, pictures, video and data content globally...

noted on 22 October that Northern Rock may give their employees bonuses in the future, if certain targets in paying back the Government loan are met.

On 21 January 2009 it was revealed that the bank's employees would receive a 10% bonus, due to the bank meeting its targets for repaying the Government loan. This caused some unrest from a number of media outlets and the Liberal Democrats

Liberal Democrats

The Liberal Democrats are a social liberal political party in the United Kingdom which supports constitutional and electoral reform, progressive taxation, wealth taxation, human rights laws, cultural liberalism, banking reform and civil liberties .The party was formed in 1988 by a merger of the...

' Vince Cable for example, but the decision to issue the bonus was defended by the Unite union, calling it a reward for their hard work and dedication.

On 3 March 2009 Northern Rock noted that only £8.9 billion of the loan remained unpaid.

On 1 October 2010 the bank announced that another £700 million had been paid off of the loan in the last three months.

Job losses

At the end of July 2008 Northern Rock announced the first set of redundancies; 800 staff were made compulsorily redundant and a further 500 staff left under a voluntary redundancy programme. It is also aiming to halve its £100 billion loan book by either selling off mortgage assets to other lenders or by declining to offer new mortgages to existing customers.

On 8 June 2010 as a part of the restructuring process it was announced that a further 650 jobs would be lost in the North East locations of the bank before the end of the year.

In a report commissioned by development agency One North East it was detailed that the downfall of the bank cost the local region around £800 million, mainly in relation to the job losses. The report was kept confidential until 2010, and now the bank claims that is

On 28 March 2011 the bank announced that it was likely that around 680 more jobs would go during the restructuring prior to the bank's return to private sector.

Danish operations

On 18 March, Northern Rock announced the termination of its Danish savings operation. All accounts in the Danish branch were closed on 18 April 2008.

Lloyds TSB deal

On 5 June it was announced that Lloyds TSB

Lloyds TSB

, a former bidder for the bank, would assume a proportion of the Northern Rock mortgage book over 3 years; this would be achieved by Lloyds TSB offering new mortgages to Northern Rock customers who are nearing the end of their fixed-rate deals.

Sponsorship

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. Chief Executive Ron Sandler was quoted as saying:

"We have already ended a number of sponsorships that I inherited... but we have chosen to continue the sponsorship of Newcastle United and Newcastle Falcons, partly because of commitments we have entered into there - sometimes sponsorships continue until they come to a contractual end - and partly because I believe it is in the commercial interest of the bank that we should continue with both of these."

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

Newcastle Falcons

The Newcastle Falcons is an English rugby union team currently playing in the Aviva Premiership. The club was established in 1877 and played under the name of Gosforth Football Club until 1990. The name was then changed to Newcastle Gosforth and the club began to play at Kingston Park stadium in...

Rugby Club, Kingston Park stadium

Kingston Park (stadium)

Kingston Park is a multi-purpose stadium in Kingston Park, Newcastle upon Tyne, England. It is used mostly for rugby union matches and is the home stadium of Newcastle Falcons. The stadium is also used for the Newcastle United Reserves to play their home matches...

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

Northumbria University

Northumbria University is an academic institution located in Newcastle upon Tyne in the North East of England. It is a member of the University Alliance.- History :...

for an undisclosed fee.

On 18 January 2010 Northern Rock announced that they had signed a new 4 year sponsorship deal with Newcastle United, worth between £1.5 million and £10 million, starting from the 2010/11 season. The sponsorship agreement with the Newcastle Falcons came to an end before the start of the 2010/11 season.

Head office and The Tower

At the time of its nationalisation, Northern Rock was developing two new offices. At its headquarters at the Regent Centre

Regent Centre

Regent Centre is a large business park in Gosforth, Newcastle upon Tyne, England. The Centre is home to a variety of companies, including banking group Northern Rock whose Head Office is located on the site...

complex in Gosforth

Gosforth

Gosforth is an area of Newcastle upon Tyne, Tyne and Wear, England, United Kingdom, to the north of the city centre. Gosforth constituted an urban district from 1895 to 1974, when it became part of the City of Newcastle upon Tyne. It has a population of 23,620...

, Newcastle upon Tyne

Newcastle upon Tyne

Newcastle upon Tyne is a city and metropolitan borough of Tyne and Wear, in North East England. Historically a part of Northumberland, it is situated on the north bank of the River Tyne...

the bank was mid-way through construction of a 10-storey tower

The Tower (Gosforth)

Partnership House is a landmark tower office building in Gosforth, Newcastle upon Tyne, United Kingdom. It is located at the Regent Centre business park, and was originally built to act as the headquarters of the nationalised British bank Northern Rock. It lies in the West Gosforth council ward...

that would provide a focus for the whole site. As the redundancy programme has made the new space surplus to capacity, the bank sought to sell or lease the tower building to a third party. The bank also developed a site at Rainton Bridge, which was also surplus to capacity, and it sold the site to npower

Npower (UK)

RWE Npower plc is a UK-based electricity and gas supply generation company, formerly known as Innogy plc. As Innogy plc it was listed on the London Stock Exchange and was a constituent of the FTSE 100 Index...

.

In April 2009, the local council, Newcastle City Council

Newcastle City Council

Newcastle City Council is the local government authority for Newcastle upon Tyne, a city in Tyne and Wear, England. The council consists of 78 councillors, three for each of the city's 26 wards...

, announced that they were to buy the building for £22 million, and lease it to a green support services company, Eaga

Eaga

Eaga plc was a British company supplying energy efficiency products. It was headquartered in Newcastle upon Tyne. In April 2011 it was acquired by Carillion.- History :...

. By November the sale of the building was complete, and the council renamed it Partnership House.

Northern Rock Foundation

Prior to Nationalisation, the company donated substantial amounts annually to its own charity, the Northern Rock Foundation. Nationalisation ended the covenant requiring Northern Rock to remit a share of profits to the Foundation. Instead, for the next three years the Foundation will receive an annual £15 million payment from Northern Rock, whether it remains publicly-owned or returns to the private sector. The Foundation's shares were cancelled and compensated in the same way as those of other shareholders.

Shareholders, hedge funds and legal action

Two hedge funds that owned 20% of the bank, SRM Global and RAB Capital, are planning to take legal action against the Government, regulators and individuals who they believe to be responsible for the problems at the bank. They allege that it was their poor actions that led to the current crisis. On 15 January 2008, a meeting was held at the 11,000 seater Metro Radio Arena to discuss the current situation at the bank; all but one of the proposals put forward by the hedge funds were rejected. In May Legal & General

Legal & General

Legal & General Group Plc , commonly known as Legal & General, is a multinational financial services company headquartered in London, United Kingdom. Its products include life insurance, general insurance, pensions and investments. It has operations in the United Kingdom, Egypt, France, Germany,...

joined the hedge funds, as an "interested party". The hedge funds are to request that an independent valuer assesses the level of compensation and to argue that the bank's shares are worth more than the final price of their trading prior to nationalisation. This legal action is thought to have started on 8 May. A number of Northern Rock shareholders have also taken action to get an increased level of compensation for their shares. Three North Labour MPs have agreed to hand a series of petitions in, on behalf of shareholders who lost hundreds of thousands of pounds when their shares were confiscated.

As of 6 July around about 10 firms had applied to value the Bank. The Times reported on 3 August that Houlihan Lokey

Houlihan Lokey

Houlihan Lokey, Inc. is the largest private investment bank in the world. Headquartered in Los Angeles, California, the firm advises middle-market and large public and private companies. Its main service lines include mergers and acquisitions, capital markets, restructuring, fairness opinions,...

, BDO Stoy Hayward and L.E.K. Consulting

L.E.K. Consulting

L.E.K. Consulting is an international strategy consulting firm, with headquarters in London.Started in 1983 by three partners from Bain & Company, James Lawrence, Iain Evans and Richard Koch, L.E.K. has since grown to over 900 consultants and 20 offices worldwide...

were the three companies short listed by the government to value the bank. On 9 September The Times reported that Andrew Caldwell, a valuations partner at BDO Stoy Hayward had been chosen as the valuer, with a fee of £4.5 million.

The legal action brought by investors against the Government started in the Royal Courts of Justice

Royal Courts of Justice

The Royal Courts of Justice, commonly called the Law Courts, is the building in London which houses the Court of Appeal of England and Wales and the High Court of Justice of England and Wales...

on 13 January 2009. Shareholders were also staging a demonstration outside the court. One of the points that was revealed about the case is that they were examining who 'leaked' the information about the bank receiving its emergency government bailout. In order to give full consideration, Lord Justice Stanley Burnton and Mr Justice Silber reserved their decision, before they gave a written judgment of the case. On 13 February it was announced that the shareholders had lost the case. Roger Lawson of the UK Shareholders Association said that there was a 'good chance' that they would appeal the decision.

In May 2009, it was reported that Sir Anthony Clarke and two other senior judges in the Court of Appeal would hear the next stage in the judicial review starting on 10 June for three days. On 28 July it was revealed that the shareholders lost their appeal, but some shareholders said that they would now try to take the case to the House of Lords. On 22 December it was reported that the shareholders had again lost their appeal, and now they will be going to the European Court of Human Rights in Strasbourg

Strasbourg

Strasbourg is the capital and principal city of the Alsace region in eastern France and is the official seat of the European Parliament. Located close to the border with Germany, it is the capital of the Bas-Rhin département. The city and the region of Alsace are historically German-speaking,...

.

On 8 December it was announced that the Northern Rock shareholders were to get no compensation, based on the valuer Andrew Caldwell.

Repossession accusations

In October 2008 a small number of charities and media outlets accused Northern Rock of having an aggressive repossession

Repossession

Repossession is generally used to refer to a financial institution taking back an object that was either used as collateral or rented or leased in a transaction. Repossession is a "self-help" type of action in which the party having right of ownership of the property in question takes the property...

policy. These allegations were denied by the bank's spokesman Simon Hall.

Restoration of confidence

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 Northern Rock as a safe place to put their money, given the current status as a nationalised bank which cannot fail. The bank decided to remove some of their savings products from the market, as the bank has a commitment to take only a 1.5% share of total UK retail deposits.

In January 2009 the media began to speculate about the Government having plans to use Northern Rock as a way of boosting lending. On 19 January, it was announced that Northern Rock would change its business strategy by offering more retention deals to its existing mortgage borrowers as their products expire, hence taking longer to pay back the remainder of its Government loan. Alistair Darling noted that it was "not appropriate for Northern Rock to continue to shrink its activities". The Daily Mail reported on 23 January, that the Government were considering injecting up to £10 billion into Northern Rock, as a new business plan at the bank. However, the European Commission may object to changes in how the bank is run, and that it may break EU state aid rules, and are investigating the matter.

In late February media sources began reporting that a section of the bank was to become a "good bank", issuing more mortgages, when it is injected with £10-14 billion by the Government. 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.

In March 2009 mortgages issued by the bank rose by 70%, compared to the previous month. In February 2010 The Times claimed that Northern Rock was interested in buying some of the branches of RBS and Lloyds.

In February 2010 the government decided to remove the 100% guarantee of the deposits at Northern Rock. Savers received 3 months notice before the removal of the guarantee at the end of May. This means that, like most banks, only the first £50,000 (as at October 2011 this figure is £85,000 - see fscs.org.uk) deposited is guaranteed.

Eventual return to the private sector

When the British Government nationalised the bank, they noted that it was to be a temporary measure, and one of their aims was eventually return the bank back to the private sector. On 26 April 2009, The Times
The Times
The Times is a British daily national newspaper, first published in London in 1785 under the title The Daily Universal Register . The Times and its sister paper The Sunday Times are published by Times Newspapers Limited, a subsidiary since 1981 of News International...

suggested that Northern Rock will be sold by the Government by the end of 2009. Potential buyers include Virgin Money

Virgin Money

, National Australia Bank

National Australia Bank

National Australia Bank is one of the four largest financial institutions in Australia in terms of market capitalisation and customers. NAB is ranked 17th largest bank in the world measured by market capitalisation...

, Santander, Blackstone

Blackstone Group

The Blackstone Group L.P. is an American-based alternative asset management and financial services company that specializes in private equity, real estate, and credit and marketable alternative investment strategies, as well as financial advisory services, such as mergers and acquisitions ,...

and TowerBrook. The Times noted that a British supermarket chain, Tesco

Tesco

Tesco plc is a global grocery and general merchandise retailer headquartered in Cheshunt, United Kingdom. It is the third-largest retailer in the world measured by revenues and the second-largest measured by profits...

, interested in buying parts of the bank. It is thought that adviser Credit Suisse

Credit Suisse

examined the plans to split the bank into 2 parts, to separate the most toxic loans and assets into a "bad bank

Bad bank

Bad bank is a term for a financial institution created to hold nonperforming assets owned by a state guaranteed bank. Such institutions have been created to address challenges arising during an economic credit crunch wherein private banks are allowed to take problem assets off their books...

". In May 2009 the EU demanded more information about the split. Another possibility is a bond debt buyback.

A spokesperson for the bank said that the sale of the bank is just one option, and there is currently no time scale. Reuters

Reuters

Reuters is a news agency headquartered in New York City. Until 2008 the Reuters news agency formed part of a British independent company, Reuters Group plc, which was also a provider of financial market data...

noted that there were considerations to sell the bank, but no formal discussions were taking place with potential buyers. Alistair Darling has stated that he is in no "hurry" to return the bank back to the private sector.

In January 2010 National Australia Bank

National Australia Bank

were widely reported to have lined up potential advisers on the deal to buy the Northern Rock. NAB already own two brands in the UK, Clydesdale

Clydesdale Bank

Clydesdale Bank is a commercial bank in Scotland, a subsidiary of the National Australia Bank Group. In Scotland, Clydesdale Bank is the third largest clearing bank, although it also retains a branch network in London and the north of England...

and Yorkshire bank

Yorkshire Bank

Yorkshire Bank is a commercial bank in England and Wales, a division of Clydesdale Bank, which in turn is a subsidiary of National Australia Bank. It mostly operates in the North of England, especially in Yorkshire. In 2006 underlying profit rose 16.7 per cent to £454 million compared with a...

s. Also in January 2010 Virgin purchased a small bank, the Church House Trust

Church House Trust

Virgin Bank Ltd trading as Church House Trust is a private British bank founded in 1978 and based in Yeovil, United Kingdom. In January 2010 the former Church House Trust plc was acquired by Virgin Money and renamed to Virgin Bank Ltd.- Origins :...

, but according to the Times and other sources Virgin still have an interest in Northern Rock and have been contacting companies such as Blackstone.

In July 2010 it was reported that a consortium

Consortium

A consortium is an association of two or more individuals, companies, organizations or governments with the objective of participating in a common activity or pooling their resources for achieving a common goal....

of City executives

City of London

The City of London is a small area within Greater London, England. It is the historic core of London around which the modern conurbation grew and has held city status since time immemorial. The City’s boundaries have remained almost unchanged since the Middle Ages, and it is now only a tiny part of...

were gathering to place a bid for Northern Rock using the vehicle NBNK Investments. UKFI have been briefed on the proposals. On 4 November Gary Hoffman left Northern Rock to become CEO at NBNK Investments. Hoffman was put on gardening leave by Northern Rock until he joins NBNK on 1 May 2011. Hoffman was to receive a package worth around £500,000 for his gardening leave, but decided to turn it down. Due to Hoffman's previous position NBNK Investments cannot table a bid for Northern Rock for a period of 12 months from 1 November 2010.

In January 2011 renewed speculation about the bank's sale was reported as it emerged that UKFI were beginning to search for both advisers and suitors for the potential sale. On 11 March Deutsche Bank

Deutsche Bank

Deutsche Bank AG is a global financial service company with its headquarters in Frankfurt, Germany. It employs more than 100,000 people in over 70 countries, and has a large presence in Europe, the Americas, Asia Pacific and the emerging markets...

AG were appointed to be the advisers for Northern Rock's return to the private sector.

On 28 March 2011 the bank announced that it was likely that around 680 more jobs would go during the restructuring prior to the bank's return to private sector.

On 15 June 2011 it was announced that the bank is to be sold to a single buyer in the private sector by the end of the year.

On 17 November 2011 the UK Government announced the sale of Northern Rock to Virgin Money for £747m.

Banking and assets split

On 26 June 2009 the bank confirmed that it was to be split into two parts, an "assetco" and "bankco". The plan is also to include that the remaining amount of the government loan will be repaid by the end of 2010. On 28 October the European Commission waived through plans to split the bank off and sell the "good" parts off. On 8 December the Northern Rock plc Transfer Order 2009 was laid before parliament and in this the Treasury announced that this restructuring would take place from 1 January 2010.

There are two companies; the first being a new company, to be re-registered with the name "Northern Rock plc", which contains the bank's retail and wholesale deposit business, and the second being the current Northern Rock plc renamed to "Northern Rock (Asset Management)

Northern Rock (Asset Management)

plc", which retains the balance of the bank's mortgage book, the Government loan, other borrowings, derivatives and certain wholesale deposits (held on behalf of Granite). The bank, "Northern Rock plc", will be offering new savings and mortgage products, but the other company, "Northern Rock (Asset Management) plc", will not.

The subsidiary in Guernsey, Northern Rock (Guernsey) Limited, and all Irish accounts are owned by the new Northern Rock plc.

After the split there are two boards of directors; Ron Sandler is the Chairman of the new Northern Rock plc and Richard Pym is Chairman of the Asset Management company. Gary Hoffman is Chief Executive of both companies.

On 10 March 2010 Northern Rock (Asset Management) plc announced that for the year 2009 the company made a better than expected loss of £257.4 million; this was a vast improvement on the previous year's losses of £1.36 billion. Due to the year's performance staff were awarded a total of £13.4 million in bonuses. Chief Executive Gary Hoffman waived his bonus payout of £700,000.

As a part of the restructuring the Guernsey business was shut down on 2 September 2010. Customers of the Guernsey business were given three months notice.

Bradford & Bingley merger

Around the time of the nationalisation of Bradford & Bingley

Bradford & Bingley

's mortgage book the press suggested that merging it with Northern Rock was a possibility. In October 2008 the chairman Ron Sandler noted that there had been informal talks concerning the idea of the merger with the government, but there had been no subsequent discussion. Sandler did however add "It would not surprise me at some point if a closer look was taken at the method of managing loan books within government-owned banks".

In March 2009 Alistair Darling said that he was keeping his options open during the "fast-moving" crisis in the banking industry, and thus not ruling out the possibility of a mortgage book merger between Northern Rock and Bradford & Bingley.

On 24 March 2010 UKFI announced its intention to integrate Northern Rock (Asset Management)

Northern Rock (Asset Management)

plc and Bradford & Bingley plc under a single holding company. On 1 October it was announced that Bradford & Bingley plc and Northern Rock (Asset Management) plc had been merged under a single holding company UK Asset Resolution Ltd

UK Asset Resolution Ltd

UK Asset Resolution Ltd is a British financial services holding company with headquarters in the West Yorkshire town of Bingley. It was established in October 2010 to hold the two run-off elements, Bradford & Bingley and Northern Rock , of the two nationalised banks in the wake of the financial...

Remutualisation

In September and October 2009 various groups of people, including the Building Societies Association, called for the Northern Rock to be remutualised

Mutualization

Mutualization or mutualisation is the process by which a joint stock company changes legal form to a mutual organization or a cooperative. Demutualization is the reverse process....

. Treasury minister Sarah McCarthy-Fry

Sarah McCarthy-Fry

Sarah McCarthy-Fry is a British Labour Co-operative politician, who was the Member of Parliament for Portsmouth North from 2005 to 2010. McCarthy-Fry was the Exchequer Secretary to the Treasury in the last Labour government.-Early life:...

said that the idea of mutualisation had not been ruled out. The Northern Rock Building Society had previously been de-mutualised in 1997, to become a bank.

In the Labour Party

Labour Party (UK)

The Labour Party is a centre-left democratic socialist party in the United Kingdom. It surpassed the Liberal Party in general elections during the early 1920s, forming minority governments under Ramsay MacDonald in 1924 and 1929-1931. The party was in a wartime coalition from 1940 to 1945, after...

's 2010 Manifesto there was a mention of a possible "mutual solution

Mutual organization

A mutual, mutual organization, or mutual society is an organization based on the principle of mutuality. Unlike a true cooperative, members usually do not contribute to the capital of the company by direct investment, but derive their right to profits and votes through their customer relationship...

" for Northern Rock. The Liberal Democrat's Manifesto noted that the party would turn Northern Rock into a building society.

On 1 February it was reported that Yorkshire Building Society

Yorkshire Building Society

The Yorkshire Building Society is the second largest building society in the UK, with its headquarters in Bradford, West Yorkshire, England. Assets now exceed £20 billion....

were interested in Northern Rock. It has also been reported that Nationwide Building Society

Nationwide Building Society

Nationwide Building Society is a British building society, and is the largest in the world. It has its headquarters in Swindon, England, and maintains significant administration centres in Bournemouth and Northampton...

are not interested in the bank. On 31 March 2011 the Coventry Building Society

Coventry Building Society

The Coventry Building Society is a building society based in Coventry, England. It is the third largest in the United Kingdom with total assets of approximately £22.3 billion at 31 December 2010. It is a member of the Building Societies Association.-History:...

expressed an interest in remutualising Northern Rock as a part of Coventry.

Sale to Virgin

During 2011 the government encouraged another round of bidding for the bank. Contenders included Virgin Money and NBNK. On 17 November 2011 it was announced that Virgin Money were going to buy Northern Rock from UKFI for £747 million up front and other potential payments of up to £280 million over the next few years. These additional payments which would take the value of the sale to over £1 billion could include a £150 million capital instrument and an additional cash consideration of £50-80 million would be paid upon a future profitable IPO or sale in the next five years.

The sale is expected to go through on 1 January 2012. The government said it had no plans to sell Northern Rock (Asset Management). There will be no further job losses for at least three years, except for the ones already announced previously. Virgin have also pledged to keep the headquarters of the new Virgin Money bank in Newcastle upon Tyne. The deal is pending regulatory and EU merger approval, and the combined business will operate under the Virgin Money brand.

The deal with Virgin includes jobs for 2,100 employees, around a million of Northern Rock's customers, 75 branches and around a £14bn mortgage book and a £16bn retail deposit book. Although the deal means that the British government are to loose hundreds of millions on the deal, they claim that this represented the best deal for the taxpayer. The purchase is funded by the Virgin Group

Virgin Group

and WL Ross & Co., and Virgin hope that the new enlarged Virgin Money with it's 4 million customers will be "a significant new competitor in UK retail banking".

The deals with the Northern Rock Foundation will be extended to at least 2013, giving Virgin and the Foundation time to agree how they will work together. The new Virgin Money also aims lend £45bn in total to support its customers over the next five years. The enlarged Virgin Money will be lead by Sir David Clementi

David Clementi

Sir David Cecil Clementi is a former Deputy Governor of the Bank of England. Clementi also holds positions on the boards of several large corporations, including Chairman of Prudential plc, one of Britain's largest insurance companies, and is a non-executive director on the board of governors of...

, as Chairman, and Jayne-Anne Gadhia, as Chief Executive Officer.

External links

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Emergence

Government intervention

Run on the bank

Stabilisation

Boardroom changes

Growth of Bank of England loan

Handling of the crisis

Financial performance

Virgin

Other bidders

Bids rejection

Possible nationalisation

In-house proposal

Final bids

Nationalisation

Boardroom changes

Offshore mortgage book

Debt reduction strategy

Job losses

Danish operations

Lloyds TSB deal

Sponsorship

Head office and The Tower

Northern Rock Foundation

Shareholders, hedge funds and legal action

Repossession accusations

Restoration of confidence

Eventual return to the private sector

Banking and assets split

Bradford & Bingley merger

Remutualisation

Sale to Virgin

See also

External links