What is going on at Northern Rock? At the end of its third business day in public ownership, we can now see a pattern emerging - their aggressive, reckless approach to banking is alive and well, and no more so than in its foreign subsidiaries. As Alistair Darling promised, it is "business as usual".
As UK taxpayers who own this business, we should be alarmed. I have already outlined how in Denmark Northern Rock is offering interest rates to savers 1 - 1.5% above that offered by the Danish banks and the Danish Government, and the saver's money is proclaimed to be guaranteed by the UK taxpayer
I have also been checking out the Bank's Irish subsidiary which is also offering above-market interest rates, again both guaranteed and subsidised by Her Majesty's Government - i.e. you and me. "We're open," proclaims the Bank, "our new guarantee arrangements agreed with the Bank of England and H.M. Treasury protects all retail savings in all accounts - regardless of the amount deposited."
Northern Rock in Ireland continues: "Your savings with Northern Rock continue to be safe and secure, protected by the UK Government guarantee arrangements...Northern Rock's operations in Ireland remain open for business as usual."
It's a fierce, competitive market for savers' money in Ireland. The main Irish banks are offering a standard 4% for Euro deposits, albeit sometimes with sweeteners attached. The Rock, however, whilst openly proclaiming its UK Government guarantee, is offering a standard 5% for Euro deposits. Like in Denmark, this is well above LIBOR at 4.25%.
This is important, as in a few weeks' time the European Commission must determine whether the state aid given by the UK to Northern Rock breaks European competition rules. Not many people know about these foreign subsidiaries. Only on Friday, the Financial Times proclaimed that "Northern Rock operates exclusively in the UK." The F.T. is wrong.
I don't know what the Commission will make of it, but given that after ten years of Gordon Brown, the UK has the lowest savings rate in the EU, the British taxpayer might well question why it is both guaranteeing and subsidising above-market interest rates to savers in both Denmark and Ireland?
