‘Picture is rosy’ for staff seeking work

Mar 19 2008 by Adrian Pearson, The Journal

Most cuts in first year, loans repaid in four

ALISTAIR DARLING yesterday said the final number of job losses at Northern Rock depended on market developments amid financial turbulence.

The Chancellor moved to reassure Rock savers and staff, saying Government guarantees remained and depositors’ money was still "safe and secure".

Northern Rock was committed to providing the best support to staff while One NorthEast was leading the Government’s response, he said.

In a written update to MPs, Mr Darling said the Rock’s future was based on four "strategic priorities" to rebuild it as a viable private savings and mortgage bank. He said the bank would halve in size while maintaining a "modest" level of new loans and the 6,500-strong workforce would fall by about a third by 2011 "with the majority of the reduction likely to occur in the first year.

"The final figure will depend on the business plan ultimately adopted and the evolution of the business in the light of market and economic developments."

Public loans and guarantees of billions of pounds would be repaid "progressively" over three to four years and retail deposits would increase modestly to form a larger share of bank funding. Risk management would be strengthened.

Mr Darling confirmed plans to continue State aid to Northern Rock had gone to the European Commission on Monday.

The Rock will submit a business plan to the Treasury for approval by the end of March. Bank of England support will be replaced with a Treasury loan over the next year.

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Shrinking business painful but needed

GORDON BROWN yesterday promised to maintain economic stability as he faced renewed calls to secure Northern Rock’s future amid worldwide financial turmoil.

The pledge came after Chancellor Alistair Darling updated the Cabinet about the global credit crunch and Northern Rock after discussions with US and international authorities, the Bank of England governor and chairman of the Financial Services Authority.

The Prime Minister’s official spokesman also said the UK economy’s "fundamentals" remained strong, with the country well placed to deal with international turmoil.

And the head of development agency One NorthEast is leading the response to Northern Rock job losses with councils, business and other regional agencies, said the spokesman.

"The Prime Minister’s message is that we are taking action in order to deliver stability of the economy and we are asking the chief executive of the regional development agency to co-ordinate and work with the agencies that I have listed in order to coordinate support for those affected," he added.

Liberal Democrat Treasury spokesman Vince Cable said Northern Rock’s future remained uncertain amid international financial problems.

"The news that Northern Rock’s new management believes that the bank has a long-term future is welcome. The decision to contract the size of the bank will be painful in the short term, but necessary to safeguard the business in the coming years.

"However, for the 2,000 people losing their jobs, the continued presence of Northern Rock in the North East will be of little consolation.

"It is critical that the Government makes every effort to ensure that those made redundant are given rapid help in finding alternative work, to prevent any further increase in unemployment in the North East."

He said taxpayers were still owed about £24bn by Northern Rock and repayment must be a priority.

"Northern Rock does at least now have a future, but amidst the turmoil in the financial markets, it is still not a certain one," Mr Cable said.

Conservative shadow Tyneside minister and business secretary Alan Duncan expressed regret about job losses, but said the bank would have to shrink before growing.

"Northern Rock now needs space so it can go about the best possible restructuring over the next couple of years."

Conservative Treasury spokesman and shadow Wearside minister Mark Hoban said the full extent of changes to Northern Rock would only be known once the Government received clearance on the business plan from the European Commission.