Finance Matters

Posts Tagged ‘Northern Rock News’

Virgin Money, the new owner of Northern Rock, is to begin charging all new customers for current accounts, even if the account remains in credit.

Virgin Money’s chief executive Jayne-Anne Gadhia “Most people know there is no such thing as free banking.

“Banks have to cover the cost of free current accounts with hidden charges such as overdraft fees.”

Her comment echoes the views of Andrew Bailey, Director of Banking at the Financial Services Authority, who said last month that free-if-in-credit current accounts led to higher charges being levied on other products.

Virgin Money will charge new customers around £5 per month for a current account, amounting to £60 per year and there is concern that other banks could follow suit.

Around 80 per cent of the 50 million current accounts in the UK are free-if-in-credit accounts and Virgin Money’s move has been criticised by consumer groups for putting further pressure on already stretched household incomes.

To soften the blow, Virgin Money will offer discounts on services such as health clubs to fee-paying current account customers.

Virgin Money has also strengthened its savings range with an instant access account and Isa offering 2.85% interest.

The bank says the new Virgin Easy Saver and Virgin Easy Access Cash Isa are simple, fair and transparent.

The 2.85% interest rate is not reliant on bonuses, so returns will not plummet after 12 months as they do with many savings products and both accounts allow customers to make as many withdrawals as they wish without incurring a penalty.

The Isa allows transfers in of cash Isa savings held at other providers.

Both the Easy Saver and the Easy Access Cash Isa are available in Northern Rock branches, online, by post and over the telephone.

Savers with money in both Northern Rock and Virgin Money will not be disadvantaged by Virgin’s takeover of the Newcastle-based bank if either of the banks collapses.

Both Virgin Money and Northern Rock will keep separate banking licences following the £747 million deal, which is expected to be rubber-stamped in January.

This means that the Financial Services Compensation Scheme (FSCS) will cover each bank separately and customers will be able to claim the full amount of compensation on their accounts in each bank in the event of difficulties.

The news should reassure savers who were concerned that the takeover could result in their compensation limits being halved, although the two licences could be merged at some stage in the future.

The FSCS covers deposits of up to £85,000 in single accounts and £170,000 in joint accounts.

Mark Neale, chief executive of the FSCS, said: “Those with large amounts of cash should remember to always try to keep within the £85,000 FSCS deposit limit, or £170,000 for joint accounts, per banking licence to protect their money.

“Anyone with savings above those limits should consider spreading their money around to ensure it is safe.”

Northern Rock will eventually operate under the Virgin Money brand and the combined entity will have four million customers, placing it in competition with Britain’s ‘big five’ of Santander, HSBC, Barclays, RBS and Lloyds and hopefully leading to better rates on the high street.

At the moment, Northern Rock tends to offer better rates on its savings accounts than Virgin Money, so savers would be wise to keep an eye on developments following the merger.

Sir David Clementi, the former deputy governor of the Bank of England, will become chairman of the combined bank, while Virgin Money’s Jayne-Anne Gadhia will retain her role as CEO.

The government has announced the sale of Northern Rock to Virgin Money for £747m, representing a loss of £650m on the £1.4bn of public money it injected into the Newcastle-based bank.

The chancellor, George Osborne said that the deal was “an important first step in getting the taxpayer out of the business of owning banks”.

Northern Rock was taken into public ownership at the beginning of the credit crunch when it became the first bank in 150 years to experience a bank run.

Confidence in the bank plummeted when it was forced to ask the Bank of England for a bail-out facility after banks stopped lending to each other in the global financial crisis.

It had previously relied on cheap wholesale credit to fund its aggressive growth strategy.

Under government ownership it was split into Northern Rock Plc and Northern Rock (Asset Management) which took on the bank’s bad debt.

It is Northern Rock Plc which is being sold to Virgin Money and there are no plans to sell Northern Rock (Asset Management).

The government has assured customers that there will be no change to accounts or services as a result of the sale and the bank will continue to have its headquarters in Newcastle.

Ron Sandler, Northern Rock executive chairman, said: “The return of Northern Rock to the private sector has always been one of our key objectives.

“We said that this would be done at the right time and when there was a proposition in the best interests of taxpayers and other stakeholders.
“It is a very positive outcome for the company following a significant restructuring process.”

Virgin Money hopes to increase the number of Northern Rock branches from its current 70 and has no plans to make a further job cuts.

It is hoped that the deal will increase competition in the retail banking sector which is currently dominated by HSBC, Barclays, Lloyds Banking Group, Santander and Royal Bank of Scotland.

Shares in financial institution NBNK has had its shares suspended on AIM after it confirmed it is in merger talks. The bank, which is run by Gary Hoffman who is the former chief executive of crisis-torn Northern Rock, was established a year ago to make acquisitions and is set to build a significant presence in [...]

At last night’s annual Mansion House speech, Chancellor George Osborne received some support for his suggestion to ring-fence banks’ retail operations so they are protected from losses from investment banking. After the speech, Barclays Chief Executive Bob Diamond said: “Retail ring-fencing would not be our first option, but we can see ways it would work, [...]