Just days after Bear Stearns proved that it’s not just Newcastle-based mortgage lenders who fall foul of the credit crunch, Northern Rock boss Ron Sandler has outlined his plans to get the business back on an even keel by creating a ‘smaller, more focussed, financially viable mortgage and savings bank’. This means chopping the workforce by a third in the next three years (that’s at least 2,000 jobs) and reducing the Rock’s asset base by half.
The board’s plan, which still needs to be approved by the Treasury and the EU, is to trim down the Rock’s current business with the aim of repaying the taxpayers’ £25bn loan by 2011. So less mortgage lending (particularly since there’s a good chance the housing market is likely to go south) but hopefully more retail deposits – which should eventually make the Rock a more attractive proposition to the private sector.
Much to nobody’s surprise, the restructuring is going to involve extensive job losses – most of which will be in the Labour heartland of the North-East (not great news when according to some polls you’re languishing 13 points behind the Tories). Sandler insisted the Rock would ‘work sensitively’ with Unite, the union that represents many of the Rock’s workers, to ‘minimize the extent and impact of job losses’. But if we were him, we wouldn’t hold out too much hope of a sympathetic hearing. The union has already released a statement saying it would ‘oppose any plans for compulsory redundancies’ and suggesting job losses can be mitigated by ‘re-training and the exploration of alternative business opportunities’ – whatever that means. General secretary Derek Simpson also told the Telegraph that the union would be seeking redundancy packages of up to 10 times the UK’s going rate.
And Sandler’s problems are unlikely to end there. He could still face opposition to his plans from the EU, with rival banks already starting to question the Rock’s ability to offer attractive savings rates to online customers that are effectively subsidised by the Government (and to be honest, you can’t really blame them). Throw in the apparent financial meltdown in the US – which could get much worse today, depending on the latest results from Goldman Sachs and Lehman Brothers – and it’s clear that he’s facing an uphill task.
Then again, he is getting paid £90,000 a month for the privilege. The soon-to-be-unemployed staff who’ve been beavering away to keep Northern Rock going for the last six months are unlikely to be shedding any tears into their Newky Brown for him...