Northern Rock Crisis
Rock withdrawals revealed in full
WORRIED savers withdrew £12.2bn from Northern Rock as it headed into trouble, it was revealed yesterday.
The bank's annual report and accounts for 2007, released yesterday, was a "story of two halves", revealing just how quickly its fortunes turned.
In the first six months of last year, the lender's performance was broadly in line its own targets.
In September, there was a run on the bank.
Yesterday's results stated: "Full year net outflow of retail funds of £12.2bn reflects significant withdrawals by retail depositors in the second half of 2007."
Just before the first run on a British bank in 140 years, Northern Rock was predicting profits of more than £500m. Yesterday, it reported losses of £167.6m and warned that it would be ''significantly loss-making'' in 2008.
Ron Sandler, the bank's executive chairman, saw the release of yesterday's results as an opportunity to outline further details of the proposed business plan for Northern Rock.
As part of plans for Northern Rock to become a scaled-down bank selling low-risk mortgages and offering savings accounts, the bank will no longer offer unsecured or commercial loans.
It also wants to shed 60 per cent of the mortgages on its books when customers' present deals run out.
The bank aims to pay back its debt to the Bank of England, which yesterday stood at about £24bn, by the end of 2010, with the aim of becoming a private company again.
Part of the strategy for the bank's future was that retail deposits, or money deposited in the bank by savers, would form half of its total funding by 2012.
It did not want to use the bank's state aid, or money from the Government, to gain an unfair advantage on competitors, to the point where it will not offer one of the top three products on the market to savers during 2008.
Despite this, Mr Sandler said he was confident savers would use the bank.
He said: "Our retail deposits have been growing in recent months.
"We have seen a steady stream of users returning to this bank attracted by the products on offer.
"We have worked hard to strike a sensible balance between our requirement not to use government support to compete unfairly and our commitment to meet government's objectives by creating a business that is sufficiently secure financially for taxpayer support to be progressively withdrawn."
He said the bank was exploring the possibility of offering other banks' mortgage products as their own customers' policies came up for redemption.
And he hinted that the bank would have no qualms, despite being state- funded, about repossessing people's homes if it was reasonable to do so.
He said: "Northern Rock has always repossessed houses in appropriate circumstances, so I don't believe anything changes as a consequence of the change in our ownership.
"Northern Rock, like any other bank, has to take steps to repossess on occasion."
The banks new business plan is dependent on approval from the EU competition commission.
Mr Sandler said: "We will have to see what the EU says and will adapt the plan accordingly. We have to operate in a way that is lawful."
He declined to comment on yesterday's revelations that Northern Rock's former chief executive Adam Applegarth, who was in charge at the time the bank ran into trouble, would receive a £760,000 "golden goodbye".
Mr Sandler said: "I am not going to get drawn into offering any views publicly about Adam Applegarth's package.
4:02am Tuesday 1st April 2008
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