Rock hits back at zombie bank jibe

Feb 6 2008 by Adrian Pearson, The Journal

NORTHERN Rock could be left as nothing more than a “zombie bank” unless the Government eases its strict sale criteria.

The Treasury’s demand that the £25bn loaned to the bank is repaid within three years has left investors wondering if the only option would be to run down the business with it surviving only as long as it takes to pay off the debt.

The so called “zombie bank” would never be able to make a profit and would be forced to shed staff as it sold off more and more of the mortgage book to pay off the loan.

Olivant have already pulled out of the race to buy the Rock, with suggestions that the Government’s insistence on the three-year repayment made the sale unviable.

There is speculation that the Treasury may consider extending its repayment deadline in order to tempt Olivant back into negotiations.

In an interview with The Journal, Rock chief executive Andy Kuipers said the “zombie” label was wrong and insisted the bank could continue as a profitable North-East employer – but not without some job losses.

Mr Kuipers said: “We very much refute that description. We will still keep the franchise open, we will attract deposits and still offer mortgages. There are different ways to mange this business and I think ‘zombie’ bank is a very unfair word. We are not in that situation. We are a bank that has to go back a couple of years in size and then emerge as a well capitalised profitable bank.”

He added the Treasury had been notified of the job losses that could be needed, but would not reveal the expected number of redundancies.

Mr Kuipers agreed the three-year loan repayment target did mean changes would be needed at the bank.

He said: “There are only two ways to repay the loans. Either shrink the balance sheet – mortgages – or attract retail funds.

“That second option is complicated because Brussels rules on state aid say we really can’t do that.

“So it is more likely we use the mortgage book to help pay off the debt. That means it will come down in size, which means a small business run-down until it stabilises again. That obviously has downward pressure on jobs and we are well aware of that.

“It is too early to say how many jobs will go because we are still working on a plan to minimise job pressure by restructuring the company. We are fairly confident that we can preserve a lot of jobs just by restructuring the company.”

A spokesman for Virgin said the business would avoid the “zombie bank” stigma if it was re-branded as part of Virgin Money.

They insist the revived bank would be capable of paying off the debt within three years thanks to the “Branson effect”.

The two largest shareholders, RAB Capital and SRM Global, which hold 18% between them, have said they prefer the management plan over the Virgin one.

The Treasury has yet to disclose a timetable for picking its preferred bidder. It had hoped to announce this by next Monday

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Safer future

ROCK bosses have insisted the bank could be a healthy, growing business again in less then 10 years.

The bank’s directors have turned their back on the risky – but hugely profitable – growth strategy that left them vulnerable to market forces and are now preparing for a safer future.

Chief executive Andy Kuipers said if the Government backed the in-house bid to run the bank it will have repaid the £25bn debt and began slow growth within years.

Mr Kuipers said: "Our time line is not for a long period. We don’t want to say when but we will be profitable well within 10 years."

He added that a recent bank offer of a fixed rate bond at 6.9% was one of the most successful in Northern Rock’s history.

"We have had quite a turn around here.

"In early January and going back until December we could not advertise but now we have been allowed to and we launched a new product in January and that was our most successful ever, even before September.

"It closed last week well over subscribed and was enormously popular, partly because of the penalty free access.

"But it proved the brand is still alive. It’s been damaged but we can bring it back."

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'A fantastic success story'

THE North-East should be proud of the way it rallied around Northern Rock, bank bosses said last night.

The bank’s management said the region would eventually look back at how the company survived and see it as a "fantastic success story".

Deputy chief executive David Baker said: "If you think about it this is a fantastic example of what the North- East does when it pulls together.

"We owe our staff and many of our customers a big ‘thank you’. 80% of our customers stayed with us and the vast majority in the North-East stayed with us.

"And the Press up here, particularly The Journal, supported us in the face of some terrible national coverage. That has helped us re-stabilise the company and we now have a long-term viable plan to remain an independent major employer in the North-East.

"We can go forward as a well run low-cost efficient bank. That is only one option but to have got there is a great achievement. This company is a runner. Andy and I have been in this business more than 30-years and we can tell you this bank still has a future.

"The region can look forward to having this bank back on its feet."

Chief executive Andy Kuipers said: "The amazing thing of this whole process, with all the media speculation and criticism, is how well the business has held up.

"We are very pleased at how things have developed. Put simply we are here to fight back and that is what will happen."