Managing the bank
Congratulations. By the end of the week you will own Britain’s eighth biggest bank. Northern Rock doesn’t produce the multibillion pound returns for its shareholders of a Barclays or an HSBC. But its profits of £627 million in 2006 are not to be sniffed at. And you own it! Brilliant!!
So what does this unprecedented nationalisation mean for us?
Savers now have a real alternative to National Savings & Investments. The Chancellor has confirmed his guarantee that all money put into Northern Rock is 100% safe. But even if he hadn’t or the guarantee is withdrawn Northern Rock is owned by the Government. Short of nuclear war it can’t go bust. So no matter how much you put into its top of the range savings accounts there is no risk you will lose it.
Borrowers too should find some good deals. Over the last few years Northern Rock has grown faster than any other lender by offering top mortgage deals. That period of growth may now be over and fears about accusations of unfair competition may keep its offers from being the very best. But they will still be good. Because at some point Ron Sandler has to sell the bank’s mortgage business. And if it had no customers there would be nothing left to sell.
Shareholders are the one group who will not do well. Northern Rock shares were suspended on Monday morning but when they closed on Friday night they were selling at just 90p each. That’s a fifth of the £4.51 value when Northern Rock became of company in October 1997 and a fourteenth of their peak value of £12.51 just a year ago. Two of its largest shareholders – both hedge funds – say the company is worth around £4.25 a share and they want £4. Dream on. The laws the Government is passing do provide for compensation for shareholders. But they assume that Northern Rock is "in administration". And the shares of bust companies are normally worth nothing.
You may own Northern Rock it but the man who gets it to play with it for the next few years is Ron Sandler. He will be paid £90,000 a month – yes a month. Although Ron lives in the UK he is not ‘domiciled’ here. Born in Zimbabwe with a German passport he is one of the fortunate non-doms who can hide their world-wide income and capital gains from HM Revenue & Customs. Though the Government has said he will pay tax here on the £1,080,000 a year he earns from Northern Rock. Phew.
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