Northern Rock won't repeat mistakes says chief exec

Feb 24 2009 by Adrian Pearson, The Journal

THE head of Northern Rock has pledged the bank’s return to mortgage lending will not see a repeat of “failed” growth plans.

In an Interview with The Journal, chief executive Gary Hoffman said the Government’s decision to allow the bank to lend £14bn over the next two years was good news for the North East as well as for the bank.

And he promised there would never be a return to the rapid growth which once saw Northern Rock hailed as a UK success story.

Mr Hoffman said: “We have been through a very difficult period, but my colleagues in Northern Rock performed very well in 2008 and we are now ahead of our target for repaying the Government debt.

“This gives us a new confidence in Northern Rock, I think I can see a spring in the step of our staff today and this announcement gives them more certainty about what we will be in the future.

“We want to grow carefully and consistently, but you will not see us return to the days of 2006/ 2007.”

The bank is now planning to offer loans of up to 90% of property values, but only as part of a new “responsible” lending strategy.

Its previous business strategy, introduced after it was nationalised, saw few loans handed out and many customers asked to take their mortgage elsewhere.

But Mr Hoffman said people should not assume there would be many mortgages offered at 90%.

He said: “We are not saying we will do the majority of the lending at 90%, or even anywhere near that.”

Northern Rock officially revealed the new lending, funded partly through another taxpayer handout, at the same time as it announced expected losses of £1.4bn for 2008.

The majority of this debt has been put down to homeowners struggling to keep up repayments during the recession. Mr Hoffman last night warned the situation would get worse for all mortgage lenders before it gets better.

The Rock also confirmed that its highest-paid management staff will not be taking a bonus this year, although most staff will see the 10% bonus promised to them as an incentive for meeting Government loan payback targets.

Mr Hoffman said it reflected the current market conditions. “No one should be surprised at these losses. Clearly because we have a big high-risk book we will take some losses but other lenders will feel this.

“Not all banks are the same, we failed in 2007 and there were others who failed in 2008.

“But there should be no reward for failure. So there are no bonuses for our 2007/2008 performance for us.

“But I think we are right to award front-line staff a bonus for meeting the targets.”

About 400 junior managers will get bonuses of up to 10% of their salary for last year.

Northern Rock is being allowed to extend the repayment period for the Government loan and will no longer encourage customers to leave the bank.

Newcastle Central MP Jim Cousins agreed the decision was good news for the region.

He said: “For the North East, it will safeguard the jobs of Northern Rock staff, and give the potential for having a big locally-based bank with a national reputation. The brand of Northern Rock has survived due to the loyalty of people in the North East.”

Last night the Conservative’s Tyneside spokesman Alan Duncan said the Government had a long way to go before it could say it had turned around the fortunes of a struggling mortgage industry.

He said: “This is a big U-turn for Northern Rock and the Government. First they closed it down and now they want it to start lending again.

“Since their other policies aren’t working, the Government had no option but to do this, but it’s no easy solution and will provide only around £5bn extra credit in a mortgage market which totals around £250bn.”