Management team unveil new Rock bid

Feb 16 2008 by Audrey Barton, The Journal

NORTHERN Rock’s in-house team unveiled a new financial bid for the troubled bank last night.

The move follows the Government branding the board’s original proposal significantly inferior to the rival Virgin Money proposal.

Both Virgin and Northern Rock bosses have been revising their offers for the bank after the Government urged both sides to improve their bids.

Last night, the board of Northern Rock revealed its revised proposal.

The Revised Restructuring Proposal offers a “controlled reduction” in the bank’s assets by scaling down mortgage lending as people redeem their mortgages, and not seeking new customers and business.

It also proposes a reorganisation of its operations under the plans, with job losses unable to be ruled out.

Shareholders will be offered the chance to buy more equity in the bank under shares rights issues. The figure the bank hopes to raise in equity is £700m – up from £500m in the original plans – which would be conditional upon EU state aid approval.

The bank is also planning to pay more money back to the Treasury than previously stated in exchange for the Government providing ongoing financial support.

The plan, effectively, aims to nurse the bank back to modest growth in prime quality lending, focusing on individuals’ savings accounts and traditional money markets. A Northern Rock spokesman said: “It is too early to say precisely how jobs may be affected, but this proposal does mean the company will become smaller, with the purpose of paying back fully our obligations to the Bank of England.

“Once implemented in full, the proposal will result in an independent, well-capitalised, low cost and low risk mortgage and savings bank.”

But Robin Ashby, who formed the Northern Rock Small Shareholders’ Group, condemned the proposal as going against everything the bank stood for. He said: “It is asking shareholders to put in more money for less return or a longer period before they get return.”

Mr Ashby believes some shareholders would be reluctant to invest more money after they had already lost cash.

He said: “By paying more money for a smaller business, it will inevitably stop doing the admirable things it has, like lending money to people getting on to the ladder.

“All of the social benefits to the region that Northern Rock was doing will disappear.”

He also raised serious concerns about the impact on jobs – and blamed the Government for this.

He said: “The business will contract and it will put more pressure on jobs.

“The Government are acting like bullies.

“It’s not just about high finance, its also about the Government squeezing jobs in the North East.

“This builds a vicious circle. They are not looking at this like a Labour Government.”