Mr. Sandler Plans To Lift The Rock From The Sea Of Despair By 2011
Mr. Ron Sandler, newly appointed chairman of the sinking Northern Rock bank, unveiled plans, which he said could get the beleaguered bank back on track by 2011. He said that his plan was to reduce the size of the bank and to repay the 24 billion pound loan, which the Bank of England had provided in order to avoid a total collapse of the bank. He also said that he would try to reduce the bank's balance sheet from the previous year-end's 107 billion pounds to 50 billion pounds by 2011 by re-directing clients to other lenders once their current mortgage deals come to an end in the coming year. Those mortgages are said to be around 30 billion pounds and those borrowers will either have to shift to other lenders or pay higher interest rates on their renewed mortgages.
Mr. Sandler also stated that he aimed to increase the bank's retail deposits to around 20 billion pounds by 2011, the year when he plans to return the bank back to the private sector. So, even as Mr. Sandler stated that the current year would still result in losses at the bank, he briefly described some of the other measures to reduce losses in the coming years. They include reducing costs by 20% and letting go of around 2,000 of its current staff, to stop giving out unsecured and commercial loans and to speed up mortgage redemptions and to renew only 40% of mortgages. Northern Rock has declared a pre-tax loss of 168 million pounds for 2007.
Northern Rock's panicky customers also withdrew 12.2 billion pounds from the bank when news of the banks collapse leaked out. Mr. Sandler is the third chairman appointed by the bank in less than six months. The bank also indicated that it would pay their chief executive, Mr. Adam Applegarth who almost sunk the bank, 760,000 pounds to end his contract, along with a company pension of 2.2 million pounds in the next 10 years as also a staff discount of 75,000 pounds on the mortgage of his home. These figures are quite high as compared to what was previously announced when he had exited the bank last December. The bank had also paid 41 million pounds as fees to various advisors including Blackstone and Goldman Sachs as they searched for a buyer for the bank. The bank had also paid 76 million pounds for new buildings for its head office even as the expansion plan was canceled. The previous chairman from October to February, Mr. Bryan Sanderson will also have to be paid 315,000 pounds as his annual salary along with 85,000 pounds as office expenses till October in the next year, when his term expires. Northern Rock also had to increase provisions for customer loans from 81 million pounds to 240 million pounds since the housing market got caught in the sub prime crisis and the bank expected substantial problems in recoveries. So, even as the bank had re-possessed 2,215 properties at the end of the previous year, which was more than thrice the number in the year before, the current market conditions indicated that the figure could rise further. The bank is also facing flak from its rivals as it tries to attract new deposits from savers. The rivals accuse the bank of using the Government guarantee as a ruse of attracting new deposits. The bank has responded by stating that it would not use the guarantees to promote its business and would continue to keep market shares much lower than recent levels. The bank also promised that it would keep out of the top 3 in retail saving schemes in the current year.
So, Mr. Sandler has to chisel away all the rough edges of the Rock and get it into a proper shape by the year 2011. It is a tough task and if the crisis affecting the US and the UK get any worse then Mr. Sandler's task will only get tougher as his projected plans will get derailed. With everyone from investors, borrowers and depositors having different complaints against the bank, only time will tell if he will be able to please all of them within the prescribed time.
Article written by: Craig Parker - Make Money Expert |
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