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11 Feb, 2008

Marcel Le Gouais
Date: 11-Feb-2008

Some 2,000 jobs could be slashed at Northern Rock regardless of whether it is nationalised, claims a source close to the bank.
The source believes redundancies are "inevitable," due to constraints on how the bidders - Virgin and the NR board itself - use Goldman Sachs' complex funding package to repay the government.

The source adds: "Either way, the business will have to be scaled down and that means job cuts."

Jayne-Anne Gadhia, chief executive of Virgin Money, told BBC Radio 4 last week that Virgin could not rule out redundancies under its plan.

A spokesman for Virgin says: "All the (redundancy) figures mentioned have been pure speculation and it is far too early to say what NR will look like in future."

There are stringent conditions on how bidders can use the funding plan, which involves turning the Bank of England's reported £25bn debt into government-backed bonds to repay the Treasury.

Virgin has already altered its plan because of the conditions. The Treasury has warned Virgin that repaying the government will put huge pressure on its growth plans for NR.

Reports also emerged last week that NR may cut its £113bn mortgage book in half, under its in-house rescue plan.

It is also believed that NR's current funding ratio, of 75% from wholesale markets and 25% from retail deposits, would be switched to 50% from each under the board's own proposal.

NR declined to comment on job losses or its own proposal.

Weekend reports claimed that Royal Bank of Scotland, Barclays and Citigroup have offered to securitise half the Bank of England's loan to NR.

The Sunday Telegraph reported the three banks recently approached the Treasury, offering to securitise £12.5bn of NR's mortgage assets in the market.

The newspaper claimed the plan is designed as an alternative to Goldman Sachs' scheme.

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