- The Washington Times - Wednesday, March 19, 2008

LONDON (AP) — Northern Rock PLC will slash one-third of its staff and cut its home loans book by half as it phases out financial support from the government over the next three to four years, the British lender said yesterday.

Under the plan, which must be approved by the European Commission because it relies on continued state aid, most of the job cuts would be made in the first year, with the rest going by 2011. The bank has about 6,500 employees.

Northern Rock was nationalized last month after exposure to short-term money markets forced it to seek emergency funding from the Bank of England, leading to Britain”s first bank run in more than a century.

Taxpayers have so far funded subsidies to the stricken mortgage lender up to $107 billion.

The mortgage lender”s new management said it would be transformed into a “smaller, more focused, financially viable” mortgage and savings bank. New mortgages will focus on prime residential properties, it said.

Ron Sandler, the former Lloyd”s of London senior executive appointed by the government to run Northern Rock, sounded a note of caution, saying that the transformation plan comes with a number of financial and operational risks.

“Market conditions remain uncertain, and a protracted downturn in the housing market would clearly present challenges to its achievement,” Mr. Sandler said. “But we are testing it carefully across a range of scenarios and are confident that we can produce a plan that will be delivered.”

The European Commission said it will examine whether the plan meets strict European Union subsidy rules that limit how public money can be used to rescue troubled companies.

“The restructuring plan has to prove that the bank will become viable and that normally at least 50 percent of the restructuring costs will be borne by the restructuring company, the rest coming from aid,” EU spokesman Ton van Lierop said.

“To be viable without state guarantees, it is clear that Northern Rock must shrink. The commission is there to verify that competition distortions from the state aid will be limited to the minimum possible. Fair competition must be ensured between all banks,” he said.

Danish banks sent regulators a letter complaining about the Northern Rock rescue plan, but Mr. Van Lierop said that would be treated separately from the EU investigation into the state subsidy.

Northern Rock said it plans to close its Danish savings operation, but the company will continue to operate savings banks in Ireland and on the island of Guernsey.

The Unite union will push for retraining and “the exploration of alternative business opportunities” to decrease the number of job losses, said Graham Goddard, deputy general secretary.

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