NORTHERN ROCK, the bank that got a £25 billion (€32 billion) bailout from the British government, will cut about a third of its 6,000-strong workforce and reduce mortgage lending to help repay state loans.
The Newcastle-based bank plans to become a "smaller, more focused, financially viable mortgage and savings" company, it said yesterday in a statement.
A spokesman for the bank said the restructuring would not affect its Dublin office, where 30 people are employed.
When news broke of Northern Rock's difficulties last September, Irish savers held about €2.3 billion with the bank through about 26,000 accounts. The job cuts announced yesterday will be complete by 2011.
Northern Rock, the first British lender to be nationalised since Johnson Matthey plc's banking unit 24 years ago, is seeking European Union approval for the plan.
The bank, led by former Lloyd's of London head Ron Sandler since it was taken into state ownership last month, will halve its asset base by reducing mortgage lending and repay government loans and guarantees over the next three to four years, the statement added.
"They will be able to pay back the government much faster," said Simon Ward, a London-based economist at New Star Asset Management Group Ltd. The government's guarantee and the bank's relatively high deposit rate compared with its competitors may allow a £10 billion loan repayment this year, he said.
UK banks and building societies have sought reassurance from the government that the bank will operate "fairly" against private-sector competitors.
"We need to be alert to the requirements of state aid," Mr Sandler said yesterday. "We do not wish to abuse that support, however, at the same time, we need to rebuild our deposit base."
The bank may repay the government's loans earlier, he said, without giving details.
Northern Rock will soon outline a repayment timetable as well as its retail deposit plans, Mr Sandler said. The bank plans to raise the money by encouraging mortgage redemptions. Northern Rock's government bailout in September resulted from the credit turmoil triggered by the collapse of the US subprime mortgage market.
Similar pressures on short-term funding forced Bear Stearns, once the second-biggest underwriter of US mortgage bonds, to agree to a takeover by JPMorgan Chase to stave off collapse. - (Bloomberg)
