Northern Rock: The dog that didn’t bark in the night?

”]Sherlock Holmes [Silver Blaise]

Northern Rock was arguably the harbinger of the credit crunch for many people in the United Kingdom. But where’s the evidence of the impact of its new leadership?

Regular subscribers will maybe recall the story as followed in Leaders we deserve (see below for the various posts).

In September 2007 its story was presented as one in which an ambitious regional institution had dynamic but misguided leaders who developed a dodgy business model which had brought the company low. Exit leaders Adam Appleyard and Matt Ridley to much fury and anxiety among small investors and mortgage holders. But in hindsight, the leaders escaped the subsequent humiliation, and accusations of cupidity and worse meted out on those who were directly blamed for the failure of the larger institutions.

Although accused then, and ever since, of dithering, the Government, and particularly Alistair Darling may be feeling a bit more comfortable now of their treatment of the case. Their de facto nationalisation of the bank is no longer regarded as an irreversible swing to left-wing politics.

Hunt the leader

More recently, the unfolding events at Northern Rock have been described with very little mention of its new leadership. A few months ago, the public mood equated bonuses for bank employees as utterly unacceptable. It emerged that Northern Rock was about to pay a 10% bonus to its staff.

A Northern Rock spokesman refused to be drawn on how much money was being paid out, but pointed out that the staff-wide bonus scheme had been announced in October [2008]. He also stressed that no executives or senior management would benefit. The reward comes after staff met targets on repaying the bank’s £26bn loan from the government.

Even Vince Cable, of the Liberal democrats, and one of the most respected and level-headed of financial commentators in the land, felt compelled to describe the scheme as “indefensible …bringing the worst of the City bonus culture into a public body.”

It was left to the Unite union to defend the management decision, pointing out that those involved were not fat cats but the workers whose renewed efforts under tough conditions agreed by The Treasury had helped secure the Government loans pumped into the bank.

Mortgage service resumed

This week [Feb 22nd 2009] the news broke that the bank was to resume mortgage lending

Northern Rock is to revive its mortgage business with up to £14bn in new loans by 2011, the government has announced. The Newcastle-based bank is expected to take on about £5bn in new mortgages this year and up to £9bn from 2010. They will be financed with money from new deposits, repayments on existing loans and more government money.

Investment analyst Justin Urquhart Stewart, of Seven Investment Management, welcomed the move and said Northern Rock could provide inspiration to other banks.
He told the BBC:

“They’ve been quietly off-market, being able to reconstruct themselves… to come back again and be able to provide a model – possibly as the world’s most boring bank – for the other banks to try and imitate. “And [it will] provide more capacity into the system so money starts being lent again and that’s what the British economy needs desperately.”

The story prompted the natural negative reaction from Conservative spokesman Greg Hands, shadow treasury minister

“We’ve been calling on the government for some time to free up credit in the economy and to make sure credit flows. However, for Northern Rock it is a bit of a volte-face because until now Northern Rock had been under orders to wind up its mortgage operation and essentially to close down business. I think there will be a contrast between existing customers who are facing repossession with all these thousands of new customers who are getting very generous terms.”

Invisible leadership

Notice that famous ‘absence’ in the emerging stories? Where’s the leadership coming from? Don’t we have here a puzzle like the mysterious case of the dog that didn’t bark in the night?

Perhaps there is a leadership story, but one in which ‘safe pairs of hands’ deliver a strategy under very difficult circumstances.

The unfolding story of Northern Rock

You can follow the unfolding story at Northern Rock in our earlier posts. From most recent to earliest:
Northern Rock: What’s good about it?
Alistair Darling plays chess at Northern Rock
Telling it like it is
Stone age economics

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