Back to Front - Bailing out bankers
WORKERS, MAY 2008 ISSUE
NORTHERN ROCK has said it will cut about 2,000 jobs by 2011 and reduce its residential mortgage lending by half. Unions have said they will fight any compulsory redundancies.
In February the bank, having previously received loans of about £25 billion from the Bank of England, was finally transferred to public ownership with all shares handed over to the Treasury. But £45 billion of the highest value mortgages remained in a private offshore trust (Granite) based in Jersey. MPs rejected peers' calls for an independent audit and for the bank to be covered by the Freedom of Information Act.
The Financial Services Authority is supposed to monitor the operation of Britain's financial institutions. In the case of Northern Rock the authority's own report showed that there had been inadequate record keeping, that proper notes were not taken of important meetings with the bank's executives and that there was no rigorous assessment of serious business risks. The attitude seemed to be that "in extremis" the Bank of England would have no option but to bail out Britain's fifth largest mortgage provider (using our money of course).
Northern Rock's latest accounts reveal that £50 million was paid to City firms and professional advisers when the bank's future was being discussed. In addition former chief executive Adam Applegarth, main architect of the bank's greedy and reckless business practices, is to get £785,000 as part of his severance payment – and a £2.6 million pension.
When the CEOs of Railtrack and Marconi got huge rewards for failure, the government said the shareholders should stop them. The government now owns Northern Rock, yet the Prime Minister's spokesman said that Applegarth's payoff was "clearly a matter for Northern Rock, which operates independently of government".
Even the European Union is to get in on the act by launching its own investigation into Northern Rock's bailout. EU regulators must approve the rescue plan. Danish banks have already made formal complaints to the European Commission alleging unfair competition in the European banking sector after Northern Rock was given state aid.
Meanwhile, despite public ownership, the bank is up to its old tricks of aggressively pursuing borrowers who have missed payments on their mortgages. (Northern Rock tops the repossessions league table, with the number of claims approaching 1,000 per month.) Also it has been slow to pass on recent Bank of England interest rate cuts despite other lenders doing so straightaway.
Now that we are supposed to own Northern Rock we should have some say in how it is run. The first priority is to keep a roof over people's heads. For example those borrowers who have only one mortgage on the house they occupy could have the mortgage converted into a state loan at a reasonable rate of interest.
Meanwhile, those who have taken out loans for second homes, particularly those members of our own class that have entered the odious "buy to let" market, should continue to pay a market rate of interest. That should leave this nationalised bank able to help people with just one home who may be in difficulties for whatever reason, such as unemployment or family breakdown.
Northern Rock used to be a mutually owned building society until enough of its members were bribed into voting for it to be turned into a privately owned bank by the offer of free shares. Those who are still shareholders are now facing the consequences of that decision and should expect no compensation.