Future of the Northern Rock bank Essay

Future of the northern rock bank

Nationalization- this is the act of making corporations owned privately into ownership of the public, that is state government.

Northern Rock Bank

[1]Northern Rock Bank was established in the year 1965; this was after the merger which occurred between two companies, that is Rock Building Society (RBS) and Northern Counties Permanent Building Society (NCPBS). Its headquarters was established at Newcastle. Currently its staff is approximated to be 6,400 with 18.9% share lending in UK market.

[2]Northern Rock Bank lends a large portion of its amounts to mortgages which is financed with money from banks and its 1.5 million savers, though small amount is received from these savers. Despite the looming crisis England Bank has breached the law by giving these Bank emergency loans. Most of the money markets have stopped lending their money to this bank because of its crisis with mortgage market of US subprime. This has made the bank to struggle from the time when money market was seized. Customers have been seen withdrawing their deposits despite the appeal by the Financial Authority Service and the Chancellor Alistair Darling for calm.

It’s clear that Northern Rock Bank has not run short of assets; however it seems it’s tied up in loans to home owners who form large percentage of its customers. With the looming global credit crisis the bank has found it hard to borrow the cash which could assist it in running its daily operations. Financial Services Authority has judged the businesses and capital base of the bank to be sound has recently requested that withdrawals and deposits could be made. The [3]Authority went further in describing the queues that has been experienced as entirely logistical and it had no relation with the solvency of the bank. The chairman of FSA said that could they have learned that the Northern Rock was insolvent they could not have allowed it to transact, this is why Bank of England was authorized to loan hence creating stability and confidence in the banking sector.

UK experience in nationalization between 1946-1986

[4]United Kingdom has had a lot of experience in nationalization of its major corporations. This can be traced as early as 1869 to current.

1946: UK government nationalized Bank of England.

This was resorted due to mismanagement which occurred in its daily operations.

Consequences:

a) The private shareholders were bought by the state.

 b) The bank now started recovering from the loss it had incurred due to                                                           mismanagement.

1947: Nationalization of Cables and Wireless Ltd.

The state saw that there was need to control key corporations which involved in provisions of essential goods to its people hence need to nationalize Cables and Wireless Ltd.

Consequences: shareholders were bought by the state.

1948: British transport commission.

Transport system is an essential service to any state or country. This is why the UK government so that in order to have full control of its essential services in a country and for proper management.

Consequences: shareholders who were previously owned by local authority and private sector were bought by the state.

1967: National Bus Company

 UK government had resorted early to nationalize all key corporations in the state so as to fully have an autonomous control over them.

Consequences; Nationalization of this corporation led to its combination with the British Transport Commission.

1971: Rolls Royce Ltd.

This was strategically important I aero-engine parts corporation, and government decided to nationalize it so that it could be efficiently managed.

Consequence: the private shareholders were bought by the state.

1973: Local Authority Water Supply.

The main aim of nationalization which was being carried out by UK government was to have full control of Key Corporation which provided essential services in the country.

 Consequences: This was undertaken in Wales and England.

1974: British Petroleum

Government wanted to be a shareholder in this corporation so that it be part of its decision making panel.

Consequence:  The government became majority shareholder in BP.

1975: National Enterprise board

Since this was a body that involved with business activities within the country, government saw the need to control this sector for efficient in development.

Consequences: Became state owned.

1977: British Aerospace.

Air transport is a key sector for a country to have efficiency in the economic development of any country.

Consequence:   Combined all the major aircrafts.

UK experience in nationalization

Having participated in the nationalization process for a long period of time UK government saw its quick growth and development in its economy. The government realized that for efficiency in economic planning their was need to nationalize its key sectors to have proper management in their business activities. This is the reason why UK concentrated in the nationalization of those corporations which were concerned with provision of essential services to the country. The government has had good economic policies in nationalization process thus it has been successful in each stage of nationalization.

Nationalization of Northern Rock

It was early this year when the Chancellor of the Exchequer made it public that the bank was to be nationalized because the bids that were made by private sector could not offer enough money to taxpayer hence for efficient in it operation the bank is supposed to be taken over by public ownership. This clearly shows that government will be the main shareholder. He promised customers that this process was not going to affect them; sine government had to form a committee to approximate the compensation per share on the investors’ equity. Also the idea to nationalize has at the time where the bank management had no sound decision on how to invest the available capital hence channeling the funds in unnecessary projects

Factors considered when making a decision to nationalize

[5]For a state to make a decision to nationalize an industry or a company it puts so many things in consideration. [6]Some of the factors which have created possibility for the nationalization of Northern Rock Bank are;

i)                    National importance.

The state could have recognized that the bank of a national importance hence needs to take over so that shareholders can realize safety from the state in case of collapse.

ii)                  Security

The state could have realized some insecurity when the bank continues to undertake operation the way it’s now. By doing so it is trying safeguard its international image in terms of banking system.

iii)                [7]Reduce foreign dorminance

Foreign dorminance can be minimized through nationalization of corporations viewed to be of national importance.

iv)                Desire to control institutions of strategic importance.

This has been seen before when UK nationalized most of its corporations which were in charge of provision of essential services to the people.

References

1)      Williamson, O.E. 1985, Banking Markets, Free Press: New York.

2)      Diebold, Francis and Glenn D.1999 Business Planning. Oxford University Press: London.

3)      Abell, D.F. 1980, Strategic Planning, Prentice-Hall: Englewood Cliffs.

4)      Elizabeth, G. and Alexander, D.2003, Nationalization: How does it Work? Second Edition. Prentice Hall. London.

5)      Ford, D. and Brown, P. 2002, Business Marketing: Managing in Complex Networks, John Wiley: Chichester.

6)      Graham, Benjamin. (1997), Nationalization, 3rd Ed. New York: Harper Collins

7)      Burton Malkiel G. (1999) State ownership of private corporations. 7th Ed. London: Norton.

8)      Morris, Kenneth M and Alan M. Siegel. (2000). Nationalization of UK based businesses. 3rd Ed. London: Simon and Schuster

9)      William G. and Collins Price. (1998), Straight from the CEO. London: Simon and Schuster

10)  Drucker, peter F. (1999), Management Challenges for the 21st Century. New York: Harper Collins.

11)  Kaysen M. (2003), Social Corporate Responsibility: A Normative Approach. London: Oxford University Press.

12)  Kotter.P, Harvard Business School press Release: Business Sustainability Journal of Banking, vol.19, Issue 2/08, 2006.

13)  http://www.wordblog.co.uk/category/newspapers/

14)   Northern Rock bank Departmental reports, September, 2005. Retrieved on: http://departments.oxy.edu/uepi/publications/tesco_report.pdf

15)  www.northernrock.co.uk

16)  news.bbc.co.uk/2/hi/business/6994328.stm

17)  www.guardian.co.uk/business/2008/apr/25/steinbrueck.rock

18)  news.xinhuanet.com/English/2007-09/18/content

19)  www.reviewcentre.com/reviews3939.html

20)  www.marketwatch.com/…/story.aspx?guid

[1] Morris, Kenneth M and Alan M. Siegel. (2000). Nationalization of UK based businesses.
[2] William G. and Collins Price. (1998), Straight from the CEO.
[3] William G. and Collins Price. (1998), Straight from the CEO.
[4] Morris, Kenneth M and Alan M. Siegel. (2000). Nationalization of UK based businesses.
[5] Elizabeth, G. and Alexander, D.2003, Nationalization: How does it Work?
[6] Morris, Kenneth M and Alan M. Siegel. (2000). Nationalization of UK based businesses.
[7] Elizabeth, G. and Alexander, D.2003, Nationalization: How does it Work?