Can Northern Rock turn itself around?

 

April 26, 2008

Many people remain unconvinced with regards to whether the ailing and recently nationalised bank, Northern Rock, can turn itself around after the crisis that it went through last year, coupled with the global credit crunch that is affecting all financial markets. As the credit crunch took a hold in the UK last year, Northern Rock was forced to borrow billions from the Bank of England in order to fund its lending, but this loan quickly became public knowledge and this swiftly led to chaos for the bank.

After finding out about the loan from the Bank of England there was widespread panic amongst customers, who thought that they bank was on the verge of collapse. Within days share values had gone through the floor and savers had withdrawn over £2 billion from the bank. This placed Northern Rock firmly in the financial history books as the first victim of a run on a British bank in over a century. Since this time, the bank has entered – unsuccessfully – into talks with potential private buyers, including Sir Richard Branson, and earlier this year was finally nationalised – although Alistair Darling did state that the nationalisation was a temporary measure.

Since its nationalisation the bank has been trying to look at different ways in which to turn its fortunes around, and a number of steps have been taken. It has introduced some impressive interest rates on savings accounts in a bid to try and win back custom. However, whilst some industry experts have pointed out that the government’s savings guarantee coupled with the nationalised status of the bank means that Northern Rock may be a safe bet for savers, many consumers have expressed wariness over putting their cash into the Rock because of the memories of the chaos that ensued last year.

More recently Northern Rock has announced that it intends to cut a third of its workforce over the next three years, cutting two thousand jobs in order to try and reduce outgoings. Officials have stated that the job losses have, of course, come as a blow to those affected, but added that resources had been put into place in order to help those affected to secure new jobs. A statement from the bank said that it was hoping to become a “smaller, more focused, financially viable mortgage and savings bank, which will be returned to the private sector.”

The Rock is also cutting back on its residential lending in order to minimize risk and try to turn itself around. A senior official from the bank stated: “We are making good progress in developing our provisional business plan. It will be a demanding plan.” which will carry risks, he said. “Market conditions remain uncertain and a protracted downturn in the housing market would clearly present challenges to its achievement.”

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