Lib Dem peer Lord Shipley has called on the government to donate 5 per cent of the profit of the sale of the ‘bad arm’ of Northern Rock Asset Management to the Northern Rock Foundation or a successor foundation.
George Osborne recently announced that the government would sell off the remaining part of the nationalised bank. When it sold part of the bank to Virgin Money, the government stipulated that the new owner must provide a certain level of funding to the Northern Rock Foundation. Last year Virgin Money and the Foundation failed to reach an ongoing funding arrangement.
While the Northern Rock Foundation still exists as a legal entity, it has stopped giving grants or accepting applications and its trustees are preparing for its “likely closure within 18 months from January 2015”.
In December 2014, Virgin Money announced it would be launching Virgin Money Foundation. This Foundation was seen as the successor to the NRF in that it would focus on charitable causes in the North East. As of the time of writing however, no further information about the VMF has been published.
When contacted by Civil Society News a spokesman for Virgin Money said that further announcements regarding the foundation would be made “in the coming months”.
No one at Northern Rock Asset Management (NRAM) was available to comment.
Will the sale of NRAM actually make a profit?
Leo Finn, former chief executive of Northern Rock, explained to Civil Society News that when Northern Rock became a bank, the foundation was originally entitled to 15 per cent of the profit from any sale.
“When the Northern Rock Building Society converted to Northern Rock PLC in 1997, at the time it decided to offer the community 5 per cent of its profits each year.
“But of course it could never be sure that it wouldn’t be taken over at some point in the future. So the covenant of 5 per cent was based on the fact that, if it was taken over, it would own 15 per cent of the value of the company.”
Finn also explained that having been with Northern Rock until 2001, he knew “the ledger assets of the bank were mortgage loans” and that the “mortgage book was very good”.
When the government took over Northern Rock, the company was valued at £0. As such neither the shareholders nor the foundation got anything, as 15 or even 5 per cent of 0 is still 0.
The most recent interim report of NRAM, published in October 2014 by UK Asset Ltd (which is managing NRAM on behalf of the government), showed that the government made £1.6bn from loan repayments. When taking into account the repayments from the three years preceding that, the government earned something in the range of £3.6bn from Northern Rock as a whole, including the sale of the ‘good’ arm of the business to Virgin Money.
While Mr Finn wouldn’t speculate on the exact kind of profit a sale of NRAM would generate, he intimated that on the strength of the mortgage book, the government would make a strong profit.
'Strong moral case' for 5 per cent donation
In a speech at the House of Lords, Lib Dem peer Lord Shipley said that the government had a “strong moral case” to give 5 per cent of any profit from the sale of NRAM to charities in the North East.
“The Foundation had been receiving 5 per cent of pre-tax profits since Northern Rock became a bank. If the government make a profit on the sale, it seems fair that a donation representing 5 per cent of that profit should be passed to the Foundation.”
Speaking to Civil Society News, Shipley also wouldn’t speculate on a figure but said he had reasons to “expect a profit” from the sale.
“I assumed that the sale of NRAM would make a loss. Actually it seems the government is in a position that it will in fact make a profit for the taxpayer.
“If that is the case, then why does some of that money not go towards the Foundation or some other charitable organisation in the North East? That’s the question.”
Leo Finn said it would be "fantastic" if the government ended up donating some of the profit to charity but said it would be "a hard battle".
"I'm always doubtful that these things will ever come to pass."
