Campaign to remutualise Northern Rock launched
A cross-party campaign has been launched calling for the remutualisation of Northern Rock, which was nationalised three years ago following its collapse as a retail bank.
Northern Rock was formed in 1965 by the merger of two smaller mutuals: England Northern Counties Permanent Building Society and the Rock Building Society, formed in 1850 and 1865 respectively. It continued to grow and operated as a traditional building society until it demutualised and floated on the London Stock Exchange in 1997. It was listed on the FTSE 100 for the first time in 2000.
Having been highly exposed to subprime lending in the US, it emerged that Northern Rock had received emergency financial support from the Bank of England and a bank run on its branches followed in September 2007. After its collapse, Northern Rock was nationalised by the then government in February 2008. Northern Rock PLC is now managed by UK Financial Investments, the company established by the government to manage the taxpayer stakes in part or wholly state-owned banks including Northern Rock PLC, Lloyds Banking Group and RBS.
On January 17, UKFI issued an invitation for expressions of interest from corporate financial advisers to work with UKFI and Northern Rock in the evaluation of strategic options for the company’s future. However, the government is yet to outline a position on what form the future of Northern Rock will take. In May 2010, the coalition agreement promised to “bring forward detailed proposals to foster diversity in financial services, promote mutuals and create a more competitive banking industry”.
The remutualisation campaign launched today, which is being spearheaded by Labour Treasury Select Committee member Chuka Umunna MP, has the support of Conservative and Liberal Democrat MPs including former Liberal Democrat leader Sir Menzies Campbell and Jonathan Evans, who served as a minister under John Major. Influential Labour backbencher Jon Cruddas and leader of the Green Party Caroline Lucas are also signatories.
Organisations including the Building Societies Association and the trade union Unite are also backing the call for remutualisation.
Mr Umunna has tabled an Early Day Motion calling on the government to carry out a feasibility study into remutualising Northern Rock PLC and to seek further advice on this option. The EDM notes the consolidation which has occurred in the financial services sector since the financial crash of 2008 and financial mutuals strong record for customer satisfaction and links with the communities which they serve.
Additionally, mutuals’ democratic structures – which make them accountable to their customers rather than shareholders – provide a model for democratising financial services and empowering customers. Mutuals’ traditional business model excludes the kinds of risky investment which characterise many other firms in the sector.
Commenting, Mr Umunna said:
“The government has made clear its support for mutuals and diversifying the financial services sector in the Coalition Agreement. We are calling for ministers to honour this commitment and ensure a feasibility study is carried out into remutualising Northern Rock.
“A mutual future for Northern Rock has many advantages, which include encouraging a more responsible attitude to risk in financial services, promoting competition and choice, increasing the power of consumers and rooting financial institutions in the communities they serve.
“If we are serious about changing the way the sector operates and its attitude, what better way to start than by remutualising Northern Rock PLC and giving life to the mutual sector.”
