Northern Rock

This article is about the former consumer bank. For other uses, see Northern Rock (disambiguation).

Not to be confused with Northern Bank.

Northern Rock

Former type	Plc
Industry	Bank
Fate	Sold to Virgin Money
Founded	1850 (Northern Counties) 1865 (Rock) 1965 (1965) (merger, as Northern Rock) 2010 (split from 'bad bank')
Defunct	12 October 2012 (2012-10-12)
Headquarters	Northern Rock House, Gosforth, Newcastle upon Tyne, England, UK
Number of locations	75 branches (2011)
Area served	UK (formerly operated in Denmark, Ireland, Guernsey)
Services	Banking, Mortgages
Revenue	£5 billion (2006)
Operating income	£627 million (2006)
Profit	£443 million (2006)
Owner	Virgin Money
Number of employees	~6000 (2007)
Website	www.northernrock.co.uk

Northern Rock was a British bank, most recently owned and operated by Virgin Money. It was based at Regent Centre in Newcastle upon Tyne, United Kingdom. During 2012 the Northern Rock brand was phased out and replaced by Virgin. Northern Rock was best known for becoming the first bank in 150 years to suffer a bank run after having had to approach the Bank of England for a loan facility, to replace money market funding, during the credit crisis in 2007. Having failed to find a commercial buyer for the business, it was taken into public ownership in 2008, and was then bought by Virgin Money in 2012.

Formerly the Northern Rock Building Society, the bank was formed in 1997 when the society floated on the London Stock Exchange (with the ticker symbol NRK). On 1 January 2010 it was split into a 'good' and a 'bad' bank, the "Northern Rock" brand was transferred to the good bank and the other division was renamed Northern Rock Asset Management (NRAM), with its own unique branding.

History

Northern Rock Building Society was formed in 1965 as a result of the merger of two North East Building Societies; the Northern Counties Permanent Building Society (established in 1850) and the Rock Building Society (established in 1865). During the 30 years that followed, Northern Rock expanded by acquiring 53 smaller building societies, most notably the North of England Building Society in 1994.

Along with many other UK building societies in the 1990s, Northern Rock chose to demutualise and float on the stock exchange, to be able to expand their business more easily. Throughout this period a concern 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. Northern Rock chose to address these concerns by founding the Northern Rock Foundation, which funded community-based projects. At its Stock Exchange flotation Northern Rock distributed shares to members with savings accounts and mortgage loans, and the flotation share price was £4.51908. It joined the stock exchange as a minor bank and was expected to be taken over by one of its larger rivals, but it remained independent.

In 2000, Northern Rock gained promotion to the FTSE 100 Index, but was demoted back to the FTSE 250 in December 2007 and later suspended from the LSE due to the bank's nationalisation.

On 14 September 2007, during the financial crisis of 2007–2010, the Bank sought and received a liquidity support facility from the Bank of England, 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.

The bank was nationalised at 00:01 on 22 February 2008 as a result of 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 away from its shareholders, without reimbursement. The media also reported cases where some shareholders had their life savings in the shares, which were taken from them. The shares had already lost over 90% of their value prior to nationalization and were valued at nil in an independent valuation process on the government-decreed assumption of that government aid was not certain and treating the business as a 'going concern'. This would later form part of shareholder's action to get compensation as, at that point, the aid was certain and the company had never stopped operating as a going concern.

On 1 January 2010 the bank was split into two parts, assets and banking. 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 were 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. The sale went through on 1 January 2012. The government said it had no plans to sell Northern Rock (Asset Management). There would be no further job losses, except for the ones already announced. Virgin also pledged to keep the headquarters of the bank in Newcastle upon Tyne. The combined business now operates under the Virgin Money brand.

On 12 October 2012 Northern Rock plc was renamed Virgin Money plc, and Virgin Money Limited was renamed Northern Rock Limited, and by this time the Northern Rock website had effectively become a 'soft redirect' to Virgin Money's website.

Subprime mortgage crisis and nationalisation

Main article: Nationalisation of Northern Rock

People queuing outside a branch in Golders Green, London, on 14 September 2007, to withdraw their savings due to fallout from the subprime crisis.

The clock outside this branch, on Northumberland Street, Newcastle upon Tyne, is emblazoned with the bank's name and has become a popular image in print and television coverage of the Northern Rock crisis. Following the Virgin rebranding this clock still features the name Northern Rock.

A branch of the Northern Rock with Virgin Money branding on Briggate in Leeds.

Under the chairmanship of Matt Ridley, Northern Rock had a business plan which involved borrowing heavily in the UK and international money markets, extending mortgages to customers based on this funding, and then re-selling these mortgages on international capital markets, a process known as securitisation. In August 2007, when the global demand from investors for securitised mortgages was falling away, the lack of money raised by this means that Northern Rock became unable to repay loans from the money market. This problem had been anticipated by the financial markets, which drew greater attention to it. On 14 September 2007, the bank sought and received a liquidity support facility from the Bank of England, to replace funds it was unable to raise from the money market. This led to panic among individual depositors, who feared that their savings might not be available should Northern Rock go into receivership. The result was a bank run – the UK's first in 150 years – where depositors lined up outside the bank to withdraw all of their savings as quickly as possible, particularly since everyone else was doing the same.

On 22 February 2008, the bank was taken into state ownership as a result of two unsuccessful bids to take over the bank, neither being able to fully commit to repayment of taxpayers' money within three years. The bank is managed at "arms length" by the government through UK Financial Investments.

The bank planned to repay the government debt within three to four years, primarily by encouraging mortgage customers to take their mortgage to another lender. Costs were also reduced by reducing numbers of staff. As of 3 March 2009, the bank was repaying the loan well ahead of target, owing a net balance of only £8.9 billion of the loan which stood at £26.9 billion at the end of 2007.

By October, customers appeared to be regaining confidence in the bank, when it emerged that there had been a surge in the number of new accounts which had been opened. People perceived Northern Rock as a safe place to put their money, given that it was currently government owned. However, there was no guarantee that if Northern Rock was to fail that the government would top-up any compensation over and above the standard £85,000 offered by the Financial Services Compensation Scheme.

Former shareholders and hedge funds also took legal action in January 2009 to get compensation for their shares; the shareholders lost the case. They also lost their appeals in the British courts, but hoped to take the case to the European courts. On 8 December 2009, it was announced that the valuer Andrew Caldwell had decided that the Northern Rock shareholders should get no compensation.

On 23 February 2009, Northern Rock announced that they would be offering £14 billion worth of new mortgages, over the next two years, as a part of their new business plan. This new lending was partly funded by an increase in the government loan and a reversal of previous strategy to pay the loan off as quickly as possible by actively encouraging mortgage customers to leave when their mortgage deal matures. The reason for this change was government policy to increase the availability of credit. This £14 billion will be split into £5 billion in 2009 and £9 billion in 2010.

Potential buyers for the bank included Virgin Money, National Australia Bank, NBNK, Santander, Blackstone, Tesco, TowerBrook, Yorkshire Building Society and Coventry Building Society. Former Chancellor of the Exchequer Alistair Darling had stated that he was in no "hurry" to return the bank to the private sector.

The bank was split into two parts, assets and banking on 1 January 2010. On 15 June 2011, it was announced that the bank was to be sold to a single buyer in the private sector by the end of the year. On 22 March 2011, the bank issued its first mortgage securitisation since the 2007 recession which nearly brought the bank down. On 17 November 2011 it was announced that Virgin Money were going to buy Northern Rock plc for £747 million. The sale was completed on 1 January 2012 and by July of that year a further £73 million deferred consideration was paid by Virgin. In 2014 Virgin Money repaid a further £154.5 million that it had received as part of the refinancing package.

Operations

A typical Northern Rock branch, on Northumberland Street, Newcastle upon Tyne in 2007. On 9 January 2012 it was given a temporary Virgin Money rebrand when Richard Branson visited Newcastle, and along with all other branches was fully rebranded later that year.

Northern Rock has been one of the top five mortgage lenders in the United Kingdom in terms of gross lending according to Council of Mortgage Lenders statistics.

As well as mortgages, the bank also deals with savings accounts and insurance. Home and contents insurance was dealt with by AXA whilst Legal & General, whose mortgage book Northern Rock took over, arrange life insurance investments.

The bank sold credit cards until 2003, when it sold the business to The Co-operative Bank in order to free capital for its rapid growth in mortgage lending, making a profit of more than £7 million. Northern Rock continued to sell credit cards under its own brand through The Co-operative Bank until November 2007; the decision to stop was made before the 2007 crisis.

In 2006 the bank had moved into sub-prime lending via a deal with Lehman Brothers. Although the mortgages were sold under Northern Rock's brand through intermediaries, the risk was being underwritten by Lehman Brothers.

At the time of being bought by Virgin the bank had 75 branches that have since been re-branded under the Virgin Money name. In 2012 Northern Rock began to provide Virgin-branded savings accounts.

Location

The Northern Rock House buildings at Regent Centre in 2011. The black coloured buildings were completed in the 1990s, and the sandstone coloured buildings that can be seen in the background were completed in the 2000s. The Northern Rock sign has since been changed to a Virgin Money logo.

The bank was based on a large site at the Regent Centre in Gosforth, Newcastle upon Tyne called Northern Rock House. It had customer contact centre operations at both North of England House in Doxford International Business Park in Sunderland and at its head office. The bank developed a site at Rainton Bridge, which it sold to Npower.

Gosforth site

Northern Rock completed the redevelopment of the Gosforth site, Northern Rock House, in the 2000s, which saw the development some new buildings as well as the demolition of their original 1960s tower block during Spring 2006.

A new tower block, simply known as The Tower, was completed in November 2008, originally intended to create 1500 jobs, and act as the main entrance and focal point of the company headquarters. The local council, Newcastle City Council, purchased the building for £22 million, and leased it to a green support services company, Eaga (now Carillion Energy), as it was surplus to the bank's requirements at the time.

The Kielder and Prudhoe buildings of the Gosforth site were completed in the early 1990s, behind which lies the distinctive glass-fronted Alnwick building. The main Atrium reception is adjacent to this, opening out onto Baker Street, a large covered atrium that housed a restaurant, shop and on-site branch. A number of other buildings, all named after North-Eastern castles are joined to Baker Street.

Outside the UK

A sub-division in Guernsey was established in February 1996, handling offshore savings and investment accounts. The Guernsey business was shut down on 2 September 2010.

Northern Rock opened a branch in Ireland on 16 November 1999 and the first branch in Northern Ireland followed on 4 April 2007. The first branch of the bank opened in Denmark on 7 February 2007; however as part of the Government restructuring, the Danish operations ceased on 18 June 2008. The €650 million worth of Irish deposits were sold to Permanent TSB in 2011.

Corporate image

File:Northern Rock old logo.png

Northern Rock logo used until 2000.

In 2000 Northern Rock introduced a new corporate identity consisting of a magenta square containing the company name. This replaced the NR 'blocks' logo. The Northern Rock Foundation also changed its logo in 2003 from the NR 'blocks' inline with the main company, using the same new typeface. The Red Box Design Group designed all the currently standing buildings at the company's headquarters in Gosforth and have contributed to many of the other design aspects of the company, such as the in-branch styling. From 1 October 1997 until the government nationalisation, the bank used the symbol NRK on the London Stock Exchange.

One of Northern Rock's final advertising campaigns before the purchase by Virgin was titled 'Works for Me' and featured local customers. Following the purchase by Virgin, the Northern Rock brand was gradually phased out during 2012. Upon buying Northern Rock, Virgin Money changed their logo to use both Virgin's red and Northern Rock's magenta colours.

Board of directors

Another section of the bank's Gosforth site in 2007.

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.

In February 2008, Ron Sandler was appointed Executive Chairman by the government. Gary Hoffman became Chief Executive of Northern Rock in October 2008. 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. 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.

Prior to being bought by Virgin the board of Northern Rock plc at 8 April 2010 was:

• Chairman: Ron Sandler
• Chief Executive: Gary Hoffman
• Chief Financial Officer: Jim McConville
• Executive Directors: Rick Hunkin
• Non-Executive Directors: Laurie Adams, Richard Coates, Mike Fairey, Mark Pain, Mary Phibbs

Sponsorship

The bank sponsored Newcastle United from 2003 to 2012.

The company sponsored many local sports clubs and events, including Newcastle United Football Club, Newcastle Falcons (rugby union), Newcastle Eagles (basketball), Durham and Middlesex County Cricket clubs, professional golfer Paul Eales and the cycling festival Northern Rock Cyclone.

The sponsorship of Newcastle United began in 2003, and was set to expire in 2010, before an extension to 2014. However this extension included a get-out clause in June 2012, which was activated in November 2011. While under government control the bank continued their sponsorship agreement. The five-year deal from 2005 to 2010 was worth £25 million, 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.

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.

Northern Rock sponsored the North East Premier League competition for recreational club cricket. In 2006 Northern Rock sponsored the All*Star Cup celebrity Golf match, which was shown on ITV. The bank also sponsors a junior golf tournament, The Northern Rock Junior Golf Festival, held at Matfen Hall.

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 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. In late 2008 the bank sold Kingston Park Stadium to Northumbria University for an undisclosed fee. 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.

Northern Rock Foundation

The company donated substantial amounts annually to its own independent charity, the Northern Rock Foundation.

See also

• Northern Rock (Asset Management)
• Northern Rock Foundation
• Nationalisation of Northern Rock
• Partnership House and Regent Centre
• Granite (Northern Rock vehicle)
• UKFI and UKAR
• Banking (Special Provisions) Act 2008
• Virgin Money UK

External links

• Virgin Money UK
• Northern Rock (Asset Management) plc (Separate company)
• Northern Rock Foundation
• Northern Rock Shareholder Action Group