UK Government

HM Treasury: Northern Rock takes another step towards independence

Press Release   •   Feb 24, 2010 11:26 GMT

An important milestone has been reached in Northern Rock’s return to independent, commercial strength with notice given today for the end of the special guarantee for the bank’s retail deposits.

The Treasury has announced that the guarantees for retail deposits in Northern Rock plc will be lifted three months from today on close of business, 24 May. The guarantee for wholesale borrowings of Northern Rock plc, to the extent it relates to sums which are attributable to retail deposits made with Northern Rock (Guernsey) Limited, will also be lifted at the same time.  Fixed term deposits in existing accounts will be guaranteed to maturity.  Today’s announcement follows the successful restructuring of the bank on 1 January.

Financial Services Secretary to the Treasury Paul Myners said:

"The Government’s actions to stabilise Northern Rock protected the savings of millions of families and the jobs of thousands of workers.  The guarantee of retail deposits was a vital step that restored confidence in Northern Rock’s operations when its customers were worried about its soundness.

"Over the last two years, we have worked to get the bank back to financial health.  We have taken a number of important steps, most recently to divide the bank into a retail business that will be sold back to the private sector in due course, and an asset management company that will remain in Government ownership.  Our goal is to see the taxpayer get a good return on its investment in the bank and for Northern Rock to focus on providing an excellent service to its customers.

"Today’s announcement shows how far we have come.  Depositors can have confidence in Northern Rock."

After the guarantee is lifted every Northern Rock retail customer will continue to have the first £50,000 of their total deposit protected by the Financial Services Compensation Scheme (FSCS), whether their deposit is fixed-term, non-fixed term or a combination of both. This is the same level of protection that is provided for retail customers of all banks and building societies in the UK.  Customers of Northern Rock  (Guernsey) will continue to benefit from the Guernsey Banking Deposit Compensation Scheme. The guarantee applying to Northern Rock’s retail deposits was put in place as a temporary measure during a period of unprecedented instability in the financial markets. It was never intended to be permanent.  The Government had undertaken to give at least three months notice before lifting the guarantee as it has today.

Throughout the financial crisis, not a single retail depositor with a UK bank has lost any of their savings.

Today’s announcement does not affect the status of wholesale deposit guarantees for Northern Rock, except guarantees covering certain wholesale borrowings of Northern Rock plc attributable to retail deposits made with Northern Rock (Guernsey).

Notes for Editors - Legal Notice
This announcement concerns those guarantee arrangements announced on 8 December 2009 in respect of retail deposits of Northern Rock plc and is notice of the termination of those guarantee arrangements as set out below.  This announcement also relates to the guarantee arrangements for certain wholesale borrowings of Northern Rock plc.

The guarantee arrangements in respect of all retail deposits held in existing accounts with Northern Rock plc which are not fixed term retail deposits will terminate with effect from 5 p.m. on 24 May 2010.

The guarantee arrangements in respect of fixed term retail deposits held in accounts with Northern Rock existing at 8 a.m on 24 February 2010 will terminate on the maturity of the relevant fixed term.  In respect of any fixed term retail deposit whose maturity is renewed or extended after 8 a.m on 24 February 2010, the guarantee arrangements in respect of that fixed term retail deposit will terminate on the date of maturity of that deposit existing prior to its renewal or extension.

The guarantee arrangements do not apply to any retail deposit made into accounts with Northern Rock where those accounts were not in existence 8 a.m on 24 February 2010.

The guarantee arrangements in respect of amounts deposited with or advanced to Northern Rock plc by Northern Rock (Guernsey) Limited (to the extent such amounts are funded by retail deposits held with Northern Rock (Guernsey) Limited) shall also terminate with effect from 5 p.m. on 24 May 2010.

The termination of the guarantee arrangements in respect Northern Rock plc referred to in this announcement does not affect any of the other guarantee arrangements announced on 8 December 2009 in respect of Northern Rock plc or Northern Rock (Asset Management) plc.

On 1 January 2010, the Northern Rock plc Transfer Order 2009 split the business of Northern Rock between two separate legal entities:

· a new company, now called ‘Northern Rock plc’, which is regulated by the Financial Services Authority, carries on Northern Rock’s retail and wholesale deposit business (other than in respect of certain wholesale deposits held on behalf of Northern Rock’s Granite securitisation and covered bond programme) and which holds a proportion of Northern Rock’s unencumbered mortgages and its mortgage origination and servicing platform; and

· the entity formerly called Northern Rock plc and now re-named ‘Northern Rock (Asset Management) plc’, which retains the balance of Northern Rock’s mortgage book (including mortgages allocated to the Granite securitisation and covered bond programme), the Government loan, its other borrowings, derivatives and certain wholesale deposits held on behalf of its Granite securitisation and covered bond programmes.

The guarantee arrangements in respect of the retail deposits of Northern Rock plc are set out in Technical Notes 2 to 4 and 11 of the Chancellor of the Exchequer’s statement of 8 December 2009 concerning guarantee arrangements relating to Northern Rock plc.

Non-media enquiries should be addressed to the Treasury Correspondence and Enquiry Unit on 020 7270 4558 or by e-mail to public.enquiries@hm-treasury.gov.uk

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Contacts

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Phone: For enquiries please contact the above department
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