Competitors Throw Verbal Rocks At Northern Bank's Business Plans

Northern Rock Bank is in the news again after other Banks and building societies argued that the Bank had an unfair advantage in retail savings due to the government guarantees backing all the deposits for the next 3 to 4 years. The assurance of Ron Sandler, Rock's executive chairman, that the bank will not be abusing the government guarantee and that they would ensure that they strike a sensible balance has not been able to pacify its rivals who maintain that this competition is not on equal standing.

Mr. Sandler's business plan to rescue the fallen rock was presented recently but this needs the approval of the Government along with the European Commission, which could take a month but these plans have already raised opposition from its competitors that the Rock has an unfair advantage due to the government backing. Mr. Sandler will also be facing opposition from the bank's union Unite, who has vowed to oppose any job cuts. Northern Rock has plans to chop around 2,000 jobs within the next 3 years as part of its re-structuring plan. Mr. Sandler, however, insisted that their saving rates were the same that were prevailing in the market. He further explained that their business plan was strong and demanding but a lot also depended on the economy proceeding as per their line of thinking and that it would take a longer time to execute their plans in case the economy strayed into a different path. Mr. Sandler also stated that his plans were not aimed at chopping jobs but more about conserving the Bank and maintaining its financial health before returning it back to the private sector. The plan also includes shutting down its savings operations in Denmark.

It has also proposed incentives to its remaining staff whenever certain targets such as paying off the government debt are achieved. But the fact that Bank can offer retail savings with Government backing will make them similar to National Savings and Investments from the safety point of view and it is precisely this point, which is troubling its competitors. The Director General of the Building Societies Association, Adrian Coles said that the Bank's plan does nothing to reduce the fear of unfair competition from a bank, which is now funded by the taxpayer and that Northern Rock's word that they will not take unfair advantage of the Government guarantee was not good enough. He said that they would have to scrutinize the business plan in detail. Mr. Sandler's plans have not revealed as to how the Bank had planned to pull in clients without using any unfair means. He only stated that the bank's current loan book was quite healthy. He also said that other lenders might be allowed to pick up its assets including its mortgage operations. The plan also called for stopping giving out unsecured loans and it would reduce its asset base of around 110 billion pounds to half its value within the next 4 years by avoiding giving out loans to its existing customers. The Bank would also not be shutting down any of its 72 branches. The bank's plans were to return the 25 billion pound loan, which the Bank Of England had provided to avoid the collapse of the Rock within the next 3 to 4 years and after that, it would give up on the government guarantees even as its rivals say that this procedure should be completed within a year. On the other hand, the UK Shareholders Association has also indicated that it is going in for legal action to get a fair compensation for its shares, which had been forcibly acquired by the government.

Consequently, Northern Rock now faces criticism not only from its rival banks but also from its own investors and its union too. The road to its financial recovery seems to be strewn with rocks and it remains to be seen how Mr. Sandler can dodge these rocks with his plans to get the stricken bank back on its feet.