Information about Northern Rock

Northern Rock
	Public (LSE: NRK)
Founded	1965
Headquarters	Gosforth, Newcastle upon Tyne, UK
Key people	Bryan Sanderson, Chairman Adam Applegarth, CEO
Industry	Bank
Revenue	£5 billion (2006)
Operating income	£627 million (2006)
Net income	£443 million (2006)
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.

In 2007, the Bank sought and received a liquidity support facility from the Bank of England,^[1] following problems in the credit markets caused by the US subprime mortgage financial crisis.

History

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.^[2][3][4][5] Northern Rock chose to address these concerns by founding the Northern Rock Foundation.^[6] 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.

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 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,^[7] handling offshore savings and investment accounts. Northern Rock opened a branch in Ireland on 16 November 1999^[8] and a branch in Denmark followed on 7 February 2007.^[9] The first branch in Northern Ireland was opened on 4 April 2007.

Business

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.^[10]

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.^[11][12]

Board of Directors

The current Chief Executive is Adam Applegarth, who joined the company in the early 1980s as a graduate trainee. Deputy Chief Executive David Baker, who joined on a similar scheme, also takes pride in having got to know the company by working as a postboy. The company is focused on developing its own staff and so, most appointments are made internally.

As of October 2007, the Board of Directors comprised:

• Chairman Bryan Sanderson
• Chief Executive Adam J. Applegarth
• Deputy Chief Executive David F. Baker
• Group Finance Director David A. Jones
• Executive Directors Keith M. Currie, Andrew M. Kuipers,
• Non-Executive Directors N. Adam H. Fenwick, Sir Ian Gibson, Nichola Pease, Michael J. Queen, Rosemary A. Radcliffe, Sir Derek Wanless

Sponsorship

The company is the official club sponsor of local football club Newcastle United,^[13] local rugby union club, Newcastle Falcons, local basketball club Newcastle Eagles, as well as the Durham and Middlesex County Cricket sides, professional golfer Paul Eales and the cycling festival Northern Rock Cyclone ^[14].

The sponsorship with Newcastle United is among the most lucrative ever signed between an English football club and a sponsor. It began in 2003, and is set to expire in 2010.

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.^[15][16] In 2006, Northern Rock was the second largest charitable giver in the FTSE 100 after ITV.^[17]

2007 Credit Crisis

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.^[18] 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.^[19]

Previously Northern Rock had increased the interest rates on its own subprime loans.^[20] 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."^[21][22]

Northern Rock is not the only British bank to have called on the Bank of England for funds since the sub-prime crisis began^[23] but is the only one to have had emergency financial support from the Tripartite Authority (The Bank of England, the FSA and HM Treasury)^[24]. 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.^[25] 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.^[26]

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).^[27] It was estimated that £1 billion was withdrawn by customers that day, about 5% of the total bank deposits held by the Northern Rock.^[28]. 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.^[29]

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.^[30]. 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. ^[31], 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.^[32] As mentioned above, the bank is the main sponsor of premiership football team Newcastle United (in a deal which runs until 2010) and also sponsors the Newcastle Falcons, Newcastle Eagles, Durham & Middlesex County Cricket Clubs, golfer Paul Eales and the cycling festival Northern Rock Cyclone.

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]

Virgin takeover offer

On 12 October, Virgin Group, have 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^[33]. It is unclear what role partners will have in the deal. Other companies are also submitting proposals.

See also

• Bank run

References

External links

• Northern Rock
• Northern Rock Ireland
• Northern Rock Foundation

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