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Mean time at the Rock

The UK finds itself in a most peculiar situation where a state-owned bank is treating its customers probably as unfairly as it is possible to treat them short of defrauding them of their money.

The punitive difference between some of the rates offered by the old plc and the 7.49 per cent SVR offered by Northern Rock in its state-owned state are eye-wateringly different.

For those unlucky enough not to have paid off a decent chunk of their debt, one might suggest that Northern Rock is, to all intents and purposes, placing much of its customer base on precipice mortgages. This is payment shock on a cliff edge.

It is almost as if most people believe those borrowers can be treated as pariahs. Together, they should have known better or something like that.

In front of the Treasury select committee, Northern Rock chief executive Ron Sandler and finance director Ann Godbehere sat talking about how they might manage to shed as many as 60 per cent of their customers.

The plan, concerns about tumbling house prices aside, would create a lean, mean little bank that could pay the Government back its money and no doubt be floated or sold off as close to 2010 as possible.

Mean is certainly the word anyway.

Now I know nationalisation is a dirty word – the received wisdom in the Treasury and Downing Street – regardless of whatever left-wing things they say or sometimes do on tax – is that most business should be in the private sector, not state-owned. Margaret Thatcher may have lost a few arguments in recent years but she has won that one for good.

But this belief has led to the Government and many others almost to regard this nationalisation as something else.

Arm’s-length management or not and regardless of whether it came about from socialist crusading zeal or not, this was a state intervention and Northern Rock is now owned by the nation.

It is not just aiming to shed customers, it is also shedding taxpayers and voters and thus the very people who actually own a share in it.

Is this shedding plan really a fair one for the people’s bank to implement?

I am not for a minute advocating that Northern Rock stays in the public sector but why exactly must it pay back what it owes so fast and why must it be returned to the private sector with such unseemly haste if it comes at such a cost to many borrowers?

The personal cost of leaving people almost loanless if not yet homeless is quite extraordinary and the default rate is now close to the industry average. Who is to say that it won’t get worse? Is that Adam Applegarth’s fault – yes, partly – but it is also increasingly Ron Sandler’s fault too.

Now I do not speak as an economist but it would be outrageous if Sandler’s clean-up job was being pursued so quickly, simply so the whole issue could be removed from the news and the political agenda before a general election – a banking version of sending in the thugs with the strong stomachs to hide the body and wash away the blood and gore after a gangland killing.

It cannot be in the cause of sound economics. The events of the last two weeks have shown just how reckless the Government is prepared to beits golden rule is by now completely tarnished – so some idea that Northern Rock’s return to the private sector is essential in the next two years to tidy up the public finances is almost farcical.

I would not advocate keeping a bank in public ownership until 2020 but why not 2011 or 2012? It might even one day mean that its book is worth more.

Finally, I cannot help thinking that it might just test treating customers fairly. In the last few weeks, mortgage IFAs and brokers have learned to their cost that TCF is narrowly defined.

It does not apply to inter-company relations. It is not a catch-all sort of fairness in the dictionary sense. However, TCF does apply to borrowers. Getting rid of them at all costs does seem to put TCF under considerable strain.

What an example for a state-run bank to set. Maybe someone should tell the FSA.

John Lappin is editor of Money Marketing


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