Northern Rock 100% savings guarantee to end on May 24


Updated:

The 100 per cent guarantee on savings deposits held with Northern Rock is to be lifted in three months, the Treasury said today.

The removal of the cast-iron guarantee comes as the Government prepares to return the nationalised bank to the private sector.

Once the guarantee is removed on May 24, customers will revert to the same level of protection offered to all UK savers, where the first £50,000 is insured by the Government.

Fixed-term deposits will be guaranteed to maturity.

Northern Rock

Today's move is seen as another major milestone in the sale of Northern Rock, following its split into two institutions in January


City minister Lord Myners said the move shows how far the restructuring of the bank had come.

'Depositors can have confidence in Northern Rock,' he said.

The removal of the guarantee is seen as a positive step in the bank's rehabilitation and will also create a level playing field with other lenders.

Northern Rock was given greater freedom to compete for new deposits at the start of the year after limitations on its share of the market were lifted.

But rivals have argued that the 100 per cent guarantee gives the nationalised bank an unfair advantage.

The deposit guarantee was put in place as a temporary measure to shore up confidence in the beleaguered lender after it suffered the first run on a UK bank in more than a century.

The bank became one of the first victims of the credit crunch following reckless lending during the housing boom and was taken into public ownership in 2008.
Savers were thrown into panic as news emerged that it had sought emergency funding from the Bank of England and the deposit guarantee was seen as a way to calm nerves.

Lord Myners said the retail deposit guarantee was 'a vital step' to restore confidence in Northern Rock.

He said: 'Our goal is to see the taxpayer get a good return on its investment in the bank and for Northern Rock to focus on providing an excellent service to its customers.'

Today's move is seen as another major milestone in the sale of Northern Rock, following its split into two institutions on January 1.

A savings and mortgage bank called Northern Rock plc - effectively the 'good' part of the bank - was spun off and will be sold into the private sector.

Its more toxic loans have been retained in the existing bank, renamed Northern Rock Asset Management, which is likely to remain in public ownership.

Northern Rock chief executive Gary Hoffman said: 'This is another positive step in the right direction and the decision reflects our good progress and the strong capital position of Northern Rock.'

He said it would also ensure that it competes on the same terms as other banks and building societies.

It has been reported that the removal of the guarantee could be swiftly followed by sale of the retail lender.

The bank which is due to be sold comprises around £19billion in retail savings and some £10 billion in residential mortgages, which is seen as an attractive leg-up for those looking to enter the UK banking sector.

Virgin Money is widely seen as a front-runner, having launched a failed bid for Northern Rock before it fell into public hands.


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