Rock could become a mutual again
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UK Financial Investments insists that remutualisation is one of the options for Northern Rock despite Rock chief executive Gary Hoffman saying that it would be very difficult to achieve.
Speaking at a Treasury select committee meeting last week, UKFI outgoing chief executive John Kingman said: “The Government has said that mutualisation is one of the options it will want to consider in the context of, for example, the disposal of Rock and we will certainly look at it on a level playing field with any other options. In the end, it will be a decision for the Government because disp- osal decisions on any of our assets ult- imately go to the Chancellor.”
But in a conference call a week before the TSC session, Hoffman appeared to rule out remutualisation as an option.
He said: “It is not something that the Government has talked to me about. It is for HM Treasury to decide that type of thing. I think that it would be very difficult to achieve. Mutualisation means giving or selling back to depositors and I think it would be quite difficult to do that.”
During the session, Labour MP Jim Cousins raised concerns over existing Rock mortgage customers, saying they will be “prisoners” when the bank is split off from the rest of the assets. This is because high loan to value ratios make it impossible for them to remortgage.
UKFI head of wholly-owned investments Keith Morgan admitted that 85 per cent of mortgage borrowers would be trapped within the business that was being run down as part of the restructure approved by the European Commission last week.
Cousins said: “It cannot be in the interests of either the taxpayer or the individuals concerned that they end up being prisoners of an institution that can only offer them a very poor mortgage deal. What is being done to protect those people who will be in the mortgage book that is retained by the old Northern Rock?”
Morgan said: “Unfair pricing practices such as that would fall foul of treating customers fairly. It would be our job as stewards of these companies where these boards report to UKFI to ensure that these companies did observe TCF.”
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Readers' comments (1)
Brendan Caffrey | 16 Nov 2009 3:11 pm
Can Northern Rock be made a mutual building society again?
The Chancellor, Alistair Darling, is not opposed to mutuality. But Treasury civil servants want the £14.5 billion of tax payers money returned to the government soon. 100 Members of Parliament support mutualisation of Northern Rock.
To mutualise or not? Who will win; and why does it matter?
Supporters would gain a lot. Savers would feel that their money was more secure in a mutual building society than in a bank; or a building society that had also become a bank; or in a high street bank with or without more risky investments in hedge funds etc.. More jobs could be created in the North East of England. Existing jobs in Northern Rock would be more secure. There would be more choice and competition with the few mutuals left, specifically the largest Nationwide. Mortgages might become easier to get; if not cheaper.
Critics of mutualisation would also gain. In particular, the good reputation of British banking, as measured by indices in America, would be enhanced. This is important as their have been rumours that one index might reduce it’s rating for Britain. This undermines international confidence in Britain and its banks; indeed in the whole economy. Returning the £14.5 billion would give a big boost to international confidence, and help the banking industry to grow.
But how bad is this reputation. Of the main big banks Barclays has received nothing from the government: neither has HSBC, which took over the old Midland bank. Barclays has received money from the Middle East. HSBC is a truly international bank, with large assets in the Far East.
Lloyds bank, now incorporating Royal Bank of Scotland, and Nat West and Halifax, currently has the government as a major shareholder. But Lloyds is about to offer shares to existing shareholders to raise more capital. This may be a controversial move, but the bank is attempting to assert control over itself. Does all this suggest a bad reputation?
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