Northern Rock charity warns against quick sale before election

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The Independent Online

The Northern Rock Foundation yesterday launched a campaign to stop the stricken mortgage bank being sold off cheaply, amid fears that political pressure ahead of a November election might force a quick deal.

The foundation, the largest donor to charity in the North of England, has hired financial advisers and written to shareholder groups, officials, ministers and other MPs to press the case for the foundation's status to be taken into account when the bank's future is decided.

It said it wanted to safeguard the future of hundreds of charities that help some of the most disadvantaged people in Northern Rock's hometown of Newcastle and the wider North-east and Cumbria.

The organisation receives 5 per cent of Northern Rock's pre-tax profits, a donation worth £31m last year, and is entitled to receive 15 per cent of the takeover price if Northern Rock is bought. With hedge funds and private equity groups circling and no trade buyer in the frame, the foundation is worried the bank could be put into administration or sold for a knock-down price.

Alastair Balls, the foundation's chairman, said: "There are pressures for a quick sale regardless of its consequences and we believe that the interests of jobs in the North-east and the assets of the foundation should be taken into consideration."

JC Flowers, the private investment firm, and Cerberus, a hedge fund, are looking at Northern Rock's books this week. JC Flowers is understood to have about £15bn of funding in place to back a deal and wants to keep the business largely intact. Cerberus would be likely to break it up. Other private equity and trade buyers are said to be interested in bits of the business but have not made firm approaches.

Sources close to the sale process say an announcement could come in about two weeks. That would allow the Government to claim it had drawn a line under the crisis before a possible November election.

Fears are also increasing about the future of the bank's 6,400 employees, of whom about 5,500 are in the North-east. Unite, the union that represents financial services workers, said: "Employees remain concerned about their future. Unite remains convinced that the best outcome for our members is for the bank to remain independent as a single entity."

The foundation's 15 per cent interest in the bank had been seen as a "poison pill" to any predator when the bank was viewed as a desirable and successful business. However, with Northern Rock's business model in ruins, the foundation is now trying to ensure its own survival and that of the causes it supports.

Projects the foundation supported last year included football training for disadvantaged young people at Sunderland FC, a programme for victims of domestic violence in Cumbria and a family support worker for carers and families of people with dementia, also in Cumbria.

The foundation was set up when the former building society became a bank 10 years ago and has made Northern Rock the third-biggest giver to charity in the FTSE 100. It had donated £175m to combat poverty and disadvantage by the end of 2006.

However, Northern Rock's market value has fallen 87 per cent to £639m since the crisis began last month, wiping out hundreds of millions of pounds that would go to the foundation if the bank were sold.

The Government guaranteed all existing Northern Rock deposits last month to stop mass withdrawals after the Bank of England's emergency backing sparked panic among savers.

The Treasury's priority has been to protect the interests of Northern Rock depositors, and the Treasury's guarantee to them could continue under any new ownership of Northern Rock.

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