Northern Rock is to make around 2,000 employees redundant as the now national bank attempts to morph itself into a smaller, deposit focused operation.
The staff losses, which account for about one third of employees, will be achieved by 2011. During the same time, Northern Rock will also concentrate on cutting its mortgage book by about 50%.
This means it is unlikely to be offering competitive mortgage rates to existing customers, forcing them to remortgage elsewhere when their current deals come up for renewal. The deals it offers to new customers are likely to attract higher rates than its peers with tougher lending criteria.
The bank has also outlined plans to repay its Bank of England loan and release the government guarantees over the next three to four years. It says it plans to do this by “increasing the level of retail deposits” – potentially meaning more competitive rates for savers.
Ron Sandler, the man appointed by the government to turn the devastated bank around, said: “This will be a robust plan to create a smaller mortgage and savings bank that will be tightly focused and financially viable.”
But Adrian Coles, director-general of the Building Societies Association, says Rock's position as a national bank gives it an unfair advantage over other banks and building societies offering saving accounts.
He said: “This does little to allay our fears of unfair competition from the taxpayer-funded bank.
"Northern Rock has confirmed that the bank’s market share of retail deposits will be increased over the next three or four years and we have only Northern Rock’s guarantee that they will not compete on an unfair basis - this is not good enough and we will look for much more detail on this in the finalised business plan later this month.
"Taxpayers deserve to see as much detail as possible about the plans of the bank that they own."