Rock readies for sale despite losses of £232m
Thursday 10 March 2011
Northern Rock's executive chairman stoked expectations of an imminent move out of public ownership yesterday when he said the bank did not need to make a profit before returning to the private sector.
Ron Sandler made his comments as the bank posted a loss of £232m for last year. He said a clear return to profit would be a benefit in attracting investors but that if it was on track for profit, that could be enough for a move out of nationalisation.
Mr Sandler said the annual loss was "disappointing" but the bank was making progress. "I do not think profitability per se is an absolute precursor when it comes to a return to private ownership," he said. "We believe we are on the right trajectory to return this business to profitability. We wouldn't be exploring options to return to private ownership if we didn't believe we were on that trajectory."
He insisted, however, that no advisers had been appointed to help with a sale and that there was no timetable for privatisation. Routes out of public ownership could include a trade sale, a public offering, or returning the bank to its mutual roots as a building society.
Mr Sandler also revealed that the bank would pay £13.1m in bonuses for 2010 despite its losses for the year. He said that amounted to an average of about £3,000 for each of the bank's 4,500 employees and former staff members covered by the payout.
The biggest bonus was £185,000 for the finance director Jim McConville. Mr Sandler does not get a bonus. Mr Sandler added the route to private ownership could be complicated by Lloyds Banking Group's sale of 600 branches and other bank assets up for grabs in the wake of the crisis.
Northern Rock said losses in the past 12 months were caused by restructuring costs, holding high levels of liquidity, and costs from government guarantees, which have now been removed.
Mr Sandler said returning to profit would depend on increasing lending, cutting costs and getting better returns on surplus liquidity. He said the bank would aim to be more competitive in the market. It recently announced a move back in to 90 per cent mortgages, though Mr Sandler insisted this was not a risky move.
The bank's plan is also at the mercy of wider economic forces and decisions. Low interest rates are not good for a customer-funded business like Northern Rock, and a rise in rates would not ring alarm bells about mortgage arrears, he said.
Mr Sandler added that the economy was still fragile but that the bank was not dangerously exposed to public-sector job cuts in its North-east heartland. Mr McConville said only 197 of Northern Rock's 120,000 mortgages were three months or more in arrears.
Mr Sandler became executive chairman last year after his former chief executive, Gary Hoffman, quit to join an acquisition vehicle that could bid for Northern Rock. The chairman said there was no need to replace Mr Hoffman because he was putting in more time as chairman and other team members were doing extra work.
Northern Rock was nationalised in February 2008 after it collapsed amid the credit crisis, sparking the first run on a UK bank for 150 years.
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