Northern Rock takes axe to a fifth of branch network

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The Independent Online

Northern Rock, the mortgage lender, yesterday said being small and nimble would help it through a slowing housing market, as it unveiled major expansion plans for the company. Part of the plans, however, include bringing down the axe on a fifth of its branch network to cut costs.

Northern Rock said it was still enjoying record lending levels while interest rates remain low, with residential mortgage lending rising 41 per cent in the first nine months of 2003 compared to the same period last year. The value of mortgages in its pipeline stood at £4.4bn at the end of the third quarter, up 36 per cent from the year before.

"We still expect average house price inflation to return to more long-term sustainable levels - around the rate of earnings growth - over the next nine months," Adam Applegarth, chief executive of Northern Rock, said yesterday. "We are delivering strong lending while maintaining tight control over costs, credit quality and lending criteria. We are small, we retain existing customers well, and are increasingly good at attracting new loans."

He has reviewed the branch network and yesterday decided to close 20 of the 94 branches to reduce overheads. The network amounts to 27 per cent of the bank's costs, the company said yesterday, but brings in only 7 per cent of sales. Around 180 people will lose their jobs as a result of the branch closures, which are mainly in the north east of England, but will be offered alternative employment within the group.

The closures are part of what is in fact a major expansion of the bank. It is opening 10 new flagship mortgage outlets in cities where it is not currently operating, and spending £30m on enlarging its head office in Gosforth, Newcastle. The move may create as many as 1,400 new jobs over the next five years, and a further 600 will be created in a mortgage administration centre in Sunderland. This would swell Northern Rock's ranks to more than 5,000.

The bank expects its profits to leap by 15 per cent this year, boosted by solid growth in its lending figures and historically low interest rates. Shares yesterday rose 1.7 per cent to close at 705p.

The bank did warn that its book of unsecured lending would rise this year but hastened to add that the credit quality of its loans was "very robust".