by Mark Johnston
What is the point of Northern Rock? Why is this company still around and, more to the point, when can the tax payer expect their money back from this failed group? This seems to be the general line of questioning and investigation when the public read any news about this particular bank these days.
Northern Rock, the first card that brought the whole deck of cards crumbling down, reported a loss of £232 million recently. The Rock is announcing more cuts and cuts of more significance in a dramatic attempt to get back into the black.
Ron Sandler, the executive chairman, has given no indication of what this means in terms of the number of job losses in the future but based on the 650 staff redundancies last year, we can be assured that the number is expected to be much higher this round of redundancies.
Since 2008 there have been significant reductions in costs on the business, this, according to Ron would need to increase. Even if this is a given, the question we should be asking is; considering the lay-offs and considering the substantial losses, why has this bank setting aside £13.1 million to pay staff bonuses this year? While this does only work out to be an average bonus of £3000 per member of staff, isn’t this still the taxpayers money? Shouldn’t these people be paid for success rather than failure?
Helpfully, Mr Sandler has advised that Northern Rock is “…on the right trajectory to return this business to profitability,” but sadly, the taxpayer is footing the bill for the bonus schemes in the mean time.
The government is desperate to get Northern Rock Plc back into the private sector and back into the black. Recently, we reported that the Rock were in the process of selecting an institution to help draw up plans to lead to a sale of the Rock to a rival group.
Northern Rock has selected Deutsche Bank to help guide the nationalized lender back into private ownerships. This came only a day after releasing its first results as an independent company. The plan is understood to aim at returning the lender to the private sector within another few years, quite a big challenge considering the size and scope of the issues at hand.
Of course, commentary from the Rock is non-committal and the use of “thoroughly exploring all options” was choice. Options that are presumably on the table would include the whole sale of the organization to a competitor, the re-listing of the bank back onto the stock market and possibly turning it into a building society.
One thing is certain, the retrieval of the taxpayer’s money is key. The difficult part here will be to ensure the bad bank, Northern Rock Asset Management (NRAM), return to profit and the performance of the £50bn loan book improves.
The latest news on NRAM is that their customers continue to repay their mortgages and failures are reducing. A good sign. So, why keep Northern Rock, well, put simply; we need our money back.
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