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Northern Rock
From Wikipedia, the free encyclopedia
| Northern Rock | |
|---|---|
 |
|
| Type | Public (LSE: NRK) |
| Founded | 1965 |
| Headquarters | Gosforth, Newcastle upon Tyne, England, UK |
| Key people | Bryan Sanderson, Chairman Andy Kuipers, CEO |
| Industry | Bank |
| Revenue | £5 billion (2006) |
| Operating income | £627 million (2006) |
| Net income | £443 million (2006) |
| Employees | 6400 |
| Website | www.northernrock.co.uk |
Northern Rock (LSE: NRK) is a British bank based at Regent Centre near Newcastle upon Tyne in northern England. Formerly the Northern Rock Building Society, the bank was formed in 1997 when the society floated on the London Stock Exchange, distributing shares to its members who held savings accounts and mortgages with them. Northern Rock joined the stock exchange as a minor bank and was expected to be taken over by one of its larger rivals, but it has remained independent. In 2000, Northern Rock gained promotion to the FTSE 100 Index, but was demoted back to the FTSE 250 in December 2007[1].
On 14 September 2007, the Bank sought and received a liquidity support facility from the Bank of England,[2] following problems in the credit markets caused by the US subprime mortgage financial crisis.
Contents |
Northern Rock Building Society was formed in 1965 as a result of the merger of Northern Counties Permanent Building Society (established in 1850) and Rock Building Society (established in 1865). Along with many other UK building societies, Northern Rock chose to demutualise and float on the stock exchange in order to better expand their business. Throughout this period a concern against demutualisation was that the assets of a mutual society was built up by its members throughout its history not just the present members who would benefit, and that demutualisation was a betrayal of the community that the societies were created to serve.[3][4][5][6] Northern Rock chose to address these concerns by founding the Northern Rock Foundation.[7] Northern Rock introduced a new corporate identity in 2000 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 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 company is midway through a redevelopment of the Gosforth site, which saw the demolition of the original 1960s tower block during Spring 2006. A new tower block is due to be completed by 2008, to act as the main entrance to the company headquarters.
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 the recently completed Baker Street, a large covered mall 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.
A sub-division in Guernsey was established in February 1996,[8] handling offshore savings and investment accounts. Northern Rock opened a branch in Ireland on 16 November 1999[9] and a branch in Denmark followed on 7 February 2007.[10] The first branch in Northern Ireland was opened on 4 April 2007.
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.[11]
In 2006 the bank had moved into sub-prime lending via a deal with Lehman Brothers. Although the mortgages are sold under Northern Rock's brand through intermediaries, the risk is being underwritten by Lehman Brothers.[12][13]
The Chief Executive is Andy Kuipers, who joined the company in 1987. The company is focused on developing its own staff and so, most appointments are made internally. After phase one of the sale process was completed in November 2007, John Devaney and Simon Laffin joined the board, Sir Derek Wanless, Nichola Pease, Adam Fenwick and Rosemary Radcliffe retired as Non Executive Directors, Adam Applegarth resigned but stayed on in a caretaker role until December 2007. David Baker and Keith Currie left the board but remain employed within the company.
As of November 2007, the Board of Directors comprised :[14][15]
- Chairman: Bryan Sanderson
- Chief Executive: Andy Kuipers
- Group Finance Director: David A. Jones
- Non-Executive Directors: Sir Ian Gibson, Michael J. Queen, John Devaney, Simon Laffin
The company sponsored many local sports clubs and events, including Newcastle United Football Club,[16] Newcastle Falcons (rugby union), Newcastle Eagles (basketball), Durham and Middlesex County Cricket clubs, professional golfer Paul Eales and the cycling festival Northern Rock Cyclone [17].
The sponsorship of Newcastle United began in 2003, and was set to expire in 2010.
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[18].
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.[19][20] In 2006, Northern Rock was the second largest charitable giver in the FTSE 100 after ITV.[21]
On 13 September 2007, Northern Rock asked the Bank of England, as lender of last resort 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.[22] The problems arose from difficulties banks faced over the Summer 2007 in raising funds in the money markets, caused by the subprime crisis in the United States. 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 £3bn from the Bank of England in the first few days of this crisis.[23]
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."[24][25]
Northern Rock is not the only British bank to have called on the Bank of England for funds since the sub-prime crisis began[26] but is the only one to have had emergency financial support from the Tripartite Authority (The Bank of England, the FSA and HM Treasury)[27]. However, the bank is more vulnerable to a credit crunch as its business model depends on funding from the wholesale credit markets, 75% of its funds coming from this source.[28] In his address to the Treasury Select Committee, Bank of England governor Mervyn King 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 disadvantages to lenders who had made sensible lending decisions.[29]
On 14 September, the first day branches opened following the news, many customers queued outside branches to withdraw their savings (a run on the bank).[30] It was estimated that £1 billion was withdrawn by customers that day, about 5% of the total bank deposits held by the Northern Rock.[31]. In one incident, police were called to the branch in Cheltenham, Gloucestershire 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 obtain after the Northern Rock website became inaccessible due to the volume of customers trying to log on.[32]
On 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.[33]. Later that day, the Chancellor of the Exchequer, Alistair Darling, announced that the British Government and the Bank of England would guarantee all deposits held at the Northern Rock. [34], Northern Rock shares rose by 16% after this was announced.
On 18 September, former Newcastle United manager Sir Bobby Robson announced that he would be opening an online account with the bank, because of its support for sport in the North East.[35]
It was reported on September 22, 2007, in The Times that a noted hedge fund manager told the paper that rival hedge funds had "reaped £1 billion in profits" from the collapse of Northern Rock.[1]
Details of the sale document were leaked to The Daily Telegraph and were reported on 8 November. They revealed that £10.5bn (44%) of the original £24bn savings deposits had been withdrawn and that the assets consisted of £80bn (73%) prime and £30bn (27%) sub-prime mortgages.[36]
In an interview on BBC Radio 4, Bank of England governor, Mervyn King, revealed that they had anticipated emergency funding to be in the £20-30bn range.[37]
| “ | What we want to do is to give incentives for people to behave properly, so in judging the interest rate at which we lent to Northern Rock we asked ourselves the question: "At what interest rate would they have to pay in borrowing from us today that would make them regret not having taken out an insurance policy as Countrywide did before the 9th of August?" | ” |
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— Bank of England governor, Mervyn King, BBC Radio 4 – File on 4 |
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The Guardian newspaper rumoured on November 23, that Northern Rock did not own £53bn of mortgages (over 70% of its mortgage portfolio), but it was owned by an offshore company[38]. Northern Rock quickly denied this and stated that they have more than enough assets to cover their borrowed money[39].
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[40].
On 12 October 2007, Virgin Group, announced that they intend to bid for Northern Rock as the lead of a coalition including American giant AIG, turnaround specialist WL Ross and First Eastern Investment. If the deal is successful, Northern Rock will be integrated into Virgin Money[41]. It is unclear what role partners will have in the deal. This bid was later approved by the UK Treasury and has been noted as the preferred option [42].
Other suitors for Northern Rock include private equity firm Cerberus[43] and an investment company Olivant, headed by the former chief executive of Abbey, Luqman Arnold[44]. By November 17th, a total of ten companies had put forward proposals for the bank. In early December JC Flowers, who had placed a take over offer for the bank,[45] dropped out of the bidding[46].
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.[47] In December the Government prepared emergency legislation to nationalise the Bank, in the event that the takeover bids fail[48].
On December 15, Northern Rock hired the bank Goldman Sachs 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[49].
- ^ Northern Rock drops from FTSE 100, BBC News, 12 December 2007
- ^ http://www.bankofengland.co.uk/publications/news/2007/090.htm
- ^ BBC:Building societies resist carpetbaggers
- ^ The Hansard,10 Mar 1997
- ^ The Hansard, 17 Mar 1997
- ^ Anthony Hilton of the Evening Standard on the battle for Standard Life
- ^ History:Northern Rock Foundation
- ^ http://www.northernrock-guernsey.co.gg/html/aboutus.htm
- ^ http://www.northernrock-ireland.ie/html/news/news_01.htm#161104
- ^ http://www.northernrock.dk/SERVICEMENU/Nyheder/tabid/73/Default.aspx (Danish)
- ^ http://www.pinnacle.co.uk/
- ^ "Northern Rock ups sub-prime rates", BBC, 24 August 2007. Retrieved on 2007-09-17.
- ^ "Stock Exchange Announcement Northern Rock PLC: Trading Statement For The 9 Months To 30 September 2006", Northern Rock, 02.10.2006. Retrieved on 2007-09-17.
- ^ London Stock Exchange Regulatory News Service (16 November 2007). "NORTHERN ROCK PLC BOARD CHANGES". Press release.
- ^ London Stock Exchange Regulatory News Service (14 December 2007). "Northern Rock Update". Press release.
- ^ Magpies extend sponsorship deal
- ^ northernrockcyclone.co.uk
- ^ Northern Rock @ Baltic, Red Box Interiors
- ^ About Us. Northern Rock Foundation. Retrieved on 2007-09-16.
- ^ "Northern Rock squeezes out 2m charity boost", BBC, Wednesday, 28 January, 1998. Retrieved on 2007-09-16.
- ^ Top 10 Corporate Foundations
- ^ Northern Rock asks for Bank help, BBC News, 13 September 2007
- ^ £3bn Lent to Northern Rock, Financial Times, 22 September 2007
- ^ Northern Rock denies financial problems, ITV News, 13 September, 2007
- ^ Thal Larsen, Peter. "Bank of England to bail out Northern Rock", Financial Times, 13 September 2007.
- ^ Barclays again taps emergency facility, International Business Times, 31 August, 2007.
- ^ Tripartite Authority Announcement re Northern Rock
- ^ Weakened Northern Rock may face bid, The Daily Telegraph, 11 September, 2007.
- ^ King, Mervyn (12 September 2007), "Turmoil In Financial Markets: What Can Central Banks Do ?", Treasury Committee
- ^ Customers Ignore Northern Rock's Plea, Sky News, 14 September 2007
- ^ More queues outside Northern Rock, BBC News, 15 September 2007
- ^ Northern Rock: Businessman barricades in branch manager for refusing to give him £1 million savings, The Mail on Sunday, 15 September 2007.
- ^ Northern Rock besieged by savers, BBC News, 17 September 2007
- ^ Northern Rock deposits guaranteed, BBC News, 17 September 2007
- ^ Bank is a North East institution BBC News, 18 September 2007
- ^ Griffiths, Katherine. "The Rock poses more problems for bidders", The Daily Telegraph, 2007-11-08.
- ^ "File on 4", Mervyn King Interview, BBC Radio 4, 6 November 2007.
- ^ Revealed: massive hole in Northern Rock's assets The Guardian, November 23 2007
- ^ Northern Rock says no asset hole, Reuters, November 23, 2007
- ^ EU regulators approve Northern Rock bailout, December 5, 2007, AFP
- ^ http://news.bbc.co.uk/1/hi/business/7041083.stm
- ^ Virgin favourite in Rock auction BBC News
- ^ Virgin to name Northern Rock team. The Guardian, October 26, 2007
- ^ Abbey boss swoops on ailing Rock The Times, November 11, 2007
- ^ J.C. Flowers Considers Bid for British Lender Northern Rock, The Wall Street Journal, October 26, 2007
- ^ JC Flowers seen exiting N. Rock race, December 7, 2007 Reuters
- ^ Northern Rock sale faces Treasury veto. Accountancy Age, 20 November 2007.
- ^ Northern Rock Reportedly Faces Nationalization By February, December 5, 2007, CNN.com
- ^ Goldman hired to aid Nothern Rock rescue, Reuters December 15, 2007
| This article needs additional citations for verification. Please help improve this article by adding reliable references. Unsourced material may be challenged and removed. (November 2007) |
- Northern Rock
- Northern Rock Ireland
- Northern Rock Foundation
- Northern Rock Denmark
- Northern Rock Guernsey
- Newcastle libraries service, Historic photograph of Northern Rock HQ
- Newscast, Various photographs of Northern Rock
