Rock: Path to privatisation
Corporate embarrassments don't come any bigger or more conspicuous than Northern Rock's near involvency last September, when it went cap in hand to the Bank of England for emergency financial support.
Which is why any severence payment to Adam Applegarth, the chief executive of the Rock at the time, was always going to spark controversy.
However the £760,000 he is receiving in monthly payments of just over £63,000 is less than his contractual entitlement.
And last December, when the board agreed Mr Applegarth's departure terms, even the Treasury was trying to persuade the world that the Rock had a future as a going concern in the private sector.
The Rock's accounts for 2007, to be published later today, will also show that it made a loss for the year of around £150m, largely due to writedowns of its exposure to US sub-prime through investments in Structured Investment Vehicles and Collateralised Debt Obligations.
Another controversial contributor to its loss was around £50m of payments to City firms and professional advisers made when it was struggling to avoid nationalisation - of which around £20m are costs incurred by the Treasury, the Financial Services Authority and the Bank of England, together with contributions to the expenses of putative bidders, led by Virgin and Olivant.
But it's by no means all bad news. Ignoring the exceptionals, writedowns and one-off charges, pre-tax profit emerges at about £420m for the year, sharply down on the £590m made in 2006, but indicative of a business with a future.
As for arrears on mortgages, they rose sharply – but the arrears rate remains about half the industry average.
Now in state hands, the Rock will also make a commitment later today that during 2010 it will have repaid all of the taxpayer-backed loan it has received from the Bank of England, which currently stands at around £24bn. Repayments have started and the loan is already about £3bn lower than it was at the end of last year.
The new nationalised Rock will say that after the Bank of England loans have been repaid, it will relinquish the guarantees the Treasury has given to other creditors.
And, finally, when it can be seen to be standing on its own two feet again, without the aid of any taxpayer crutch, it’ll seek a return to the private sector – either through a stock market listing or a sale to another bank or financial institution.
Also to be published will be a so-called “competitive framework” document. The point of this will be to reassure other banks that it won't compete with them unfairly, now that it is probably the safest bank in the world as a subsidiary of HMG.
The Rock’s chairman, Ron Sandler, will endeavour to allay rivals’ fears by pledging that his bank’s products will never again be at the top of best buy tables, unless and until it returns one day to the private sector.
UPDATE 17:00 It's going to get much worse before it gets better. That was one of the messages buried in Northern Rock's business plan.
Today the state-owned bank had the indignity of being the only big British bank to announce a loss for 2007
That loss of £168m before tax was largely due to the impairment of investments linked to US sub-prime loans, the notorious SIVs and CDOs
But more disturbing for those who take an interest in the health of British banks in general was a trebling in the amount the bank set aside to £240m in provisions for future losses on regular British mortgages and unsecured loans.
Northern Rock added that it expected loan losses to rise further, because falls in house prices mean that it will recover less of what it's owed when forced to take possession of properties.
And the bank fears what it calls "an increased propensity" of customers to default.
So in the current year the bank expects to be significantly loss making again, in part due to costs associated with its plans to halve its size.
What's more, it doesn't expect to break even again till 2011.
In other words, the path back to the private sector will neither be quick or painless.