Northern Rock
Northern Rock, formerly the Northern Rock Building Society, was a British bank. Based at Regent Centre in Newcastle upon Tyne, United Kingdom, Northern Rock was originally a building society. It demutualised and became Northern Rock bank in 1997, when it floated on the London Stock Exchange with the ticker symbol NRK.
This article is about the former consumer bank. For other uses, see Northern Rock (disambiguation).Company type
Bank
1850 (Northern Counties)
1865 (Rock)
1965 (merger, as Northern Rock)
12 October 2012
Sold to Virgin Money
75 branches (2011)
UK (formerly operated in Denmark, Ireland, Guernsey)
- Matt Ridley (chairperson, 2007)
- Adam Applegarth (CEO, 2007)
£5 billion (2006)
£627 million (2006)
£443 million (2006)
~6000 (2007)[1]
During the early 2000s the company borrowed substantially to fund mortgages, with the aim of ambitious growth, and also donated large amounts to charitable purposes and communities directly and through sponsorships. The global banking crisis beginning around 2007–08 meant that it was unable to produce income as expected from its loans, and was at risk of being unable to repay the amounts it had borrowed. The news that the bank had approached the government for support with its liquidity led within 24 hours to a public lack of confidence and concerns that savings were at risk,[2] and the bank failed following a bank run as people rushed to withdraw their savings. It was the first British bank in 150 years to fail due to a bank run.[3]
Unable to find a commercial buyer or secure the further government support needed, it was taken into public ownership in 2008, as an alternative to insolvency. By that point the government had extended liquidity support of tens of billions of pounds to Northern Rock. An inquiry concluded that the board had failed to properly protect the bank from the risks inherent in its strategy, or to restrain the executive directors where required, therefore although the bank had sufficient assets, it had become vulnerable.
The branch operations were eventually returned to private ownership when the branches and other retail operations were acquired by Virgin Group in 2012, being rebranded as Virgin Money the same year. The mortgage book of higher risk assets was renamed Northern Rock (Asset Management) and later "NRAM plc",[4] and remained in public ownership until it was sold to Cerberus Capital Management in 2016.[5]
As of May 2024 the Northern Rock Shareholder Action Group are continuing their campaign to obtain just compensation for the shares that were taken by the Government when the bank was nationalised during the 2007–2008 financial crisis.[6]
History[edit]
Northern Rock Building Society was formed in 1965 by the merger of two North East of England building societies, both of which were based in Newcastle-upon-Tyne: the Northern Counties Permanent Building Society (established in 1850) and the Rock Building Society (established in 1865).[7] During the following 30 years, Northern Rock expanded through the acquisition of 53 smaller building societies, most notably the North of England Building Society in 1994.[8]
Along with many other UK building societies in the 1990s, Northern Rock chose to demutualise as a building society and float on the stock exchange as a bank. Throughout this period an argument against demutualisation was that the assets of a mutual society were built up by its members throughout its history, not just by current members, and that demutualisation was a betrayal of the community that the societies were created to serve.[9][10][11] Northern Rock chose to address these concerns by establishing the Northern Rock Foundation, which funded community-based projects.[12] At its Stock Exchange flotation on 1 October 1997 (when it converted from a building society to a bank),[13] Northern Rock distributed shares to members with savings accounts and mortgage loans; the flotation share price was £4.51908.[14] It joined the stock exchange as a minor bank.
In 2000, it was promoted to the FTSE 100 Index. After the 2007 crisis, it was demoted to the FTSE 250 in December of that year,[15] before suspension upon nationalisation.
On 14 September 2007 the bank sought and received a liquidity support facility from the Bank of England,[16] following problems in the credit markets caused by the financial crisis of 2007–2008. The bank was more exposed than others to restrictions in the supply of credit because of the way it had funded its expansion. It had borrowed short term on the wholesale money markets and lent long term for mortgages on property. This was a policy well known to cause failures (see Banking School Theory of Crises under Financial Crises) when short-term interest rates rose above long-term rates and insufficient hedging was in place.[17][18]
The bank was nationalised at 00:01 on 22 February 2008 following two unsuccessful bids to take over the bank, neither being able to fully commit to repayment of taxpayers' money. In doing so, the Government effectively took ownership of the insolvent institution away from its shareholders, without reimbursement. The media reported cases where some shareholders had their life savings in the shares, which were taken from them.[19][20] The shares had already lost over 90% of their value prior to nationalisation, and were valued at nil in an independent valuation process, as the government had not guaranteed aid. This would later form part of shareholder's action to seek compensation as, at that point, the aid was certain and the company had never stopped operating as a going concern.
A substantial reduction in the staff was announced in 2008, with 800 people made compulsorily redundant in July of that year, and another 500 taking voluntary redundancy. The bank planned to make another 700 redundant by 2011.[21]
On 1 January 2010 the bank was split into two parts, assets and banking.[22] In June 2011 the bank was officially put up for sale back to the private sector, and on 17 November 2011 it was announced that Virgin Money was going to buy Northern Rock plc for £747 million up front and other potential payments of up to £280 million over the next few years.[23] The sale went through on 1 January 2012.[24][25] The government said it had no plans to sell Northern Rock (Asset Management) and there would be no further job losses, except for those already announced. Virgin also pledged to keep the headquarters of the bank in Newcastle upon Tyne.[26] The combined business now operates under the Virgin Money brand.[27]
On 12 October 2012 Northern Rock plc was renamed Virgin Money plc, and Virgin Money Limited was renamed Northern Rock Limited. By this time the Northern Rock website had effectively become a 'soft redirect' to Virgin Money's website.
Prior to the credit crisis the company had focused on developing its own staff, and most appointments, including the chief executive, were made internally.
At the time of the 2007 financial crisis Matt Ridley was the chairman and Adam Applegarth was the chief executive. Ridley resigned in October 2007 and Applegarth resigned in November 2007, although the latter stayed on in a caretaker role until December 2007. The chief financial officer was Andy Kuipers, who joined the company in 1987. After Applegarth's departure, Kuipers became the interim chief executive prior to the nationalisation before retiring on 31 August 2008.[80]
In February 2008, Ron Sandler was appointed executive chairman by the government. Gary Hoffman became chief executive of Northern Rock in October 2008.[81] With the appointment of Gary Hoffman, Ron Sandler changed to a non-executive chairman position.
Since the split of the bank into Northern Rock plc and Northern Rock (Asset Management) plc on 1 January 2010, each company had its boards of directors.[82] On 4 November 2010 Northern Rock announced that Gary Hoffman had left the bank and was to move to NBNK Investments as CEO. One of the stipulations of Hoffman's appointment at NBNK was that they could not table a bid for Northern Rock for a period of 12 months.[83]
Prior to being bought by Virgin the board of Northern Rock plc at 8 April 2010 was:
Sponsorship[edit]
The company sponsored many local sports clubs and events, including Newcastle United Football Club,[84] Newcastle Falcons (rugby union), Newcastle Eagles (basketball), Durham and Middlesex County Cricket clubs, professional golfer Paul Eales and the cycling festival Northern Rock Cyclone.[85]
The sponsorship of Newcastle United began in 2003, and was set to expire in 2010, before an extension to 2014.[86] However this extension included a get-out clause in June 2012, which was activated in November 2011.[87] While under government control the bank continued their sponsorship agreement. The five-year deal from 2005 to 2010 was worth £25 million,[88] and the 4-year extension was to be worth between £1.5 million and £10 million. In 2012 after Virgin bought the bank, Virgin Money signed a 2-year deal to sponsor Newcastle United initially using the remaining time of Northern Rock's deal that was cut short; this deal was again itself later cut short.[89]
In 2005, to coincide with the Spirit of the Tall Ships Festival, Northern Rock enlisted the help of Red Box Interiors to create a temporary art installation at The Baltic Centre for Contemporary Art on the Gateshead Quay of the Tyne. The art entitled "Northern Rock @ Baltic" included mobile light stem sculptures and large scale external graphics.[90]
Northern Rock sponsored the North East Premier League competition for recreational club cricket.[91] In 2006 Northern Rock sponsored the All*Star Cup celebrity Golf match, which was shown on ITV.[92][93] The bank also sponsors a junior golf tournament, The Northern Rock Junior Golf Festival, held at Matfen Hall.[94]
In 2007, almost three weeks before the bank had to appeal to the Bank of England for an emergency loan, the bank bought the home ground of Newcastle Falcons Rugby Club, Kingston Park stadium[88] for £15 million. In February 2008, documents relating to the sale came to light, attracting much criticism that the purchase has been made at a time of impending crisis.[95] In late 2008 the bank sold Kingston Park Stadium to Northumbria University for an undisclosed fee.[96] While under government control the bank continued to sponsor Newcastle Falcons; the sponsorship agreement with the Falcons came to an end before the start of the 2010/11 season.[97]
Northern Rock Foundation[edit]
The company donated substantial amounts annually to its own independent charity, the Northern Rock Foundation.
The nationalisation of Northern Rock had a devastating impact on the local charity sector in the North East, which was funded almost entirely by dividends from Northern Rock. The largest shareholder in the bank was the Northern Rock Foundation, which owned 15% of the bank’s share capital. The charity did tremendous work with around £235 million spent on local charities and good causes.
The charity wound up after handing out some of its last grants to good causes across the North East and Cumbria in 2015.