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Concerns have emerged about the future of one of the UK’s biggest corporate foundations after the severe liquidity problems experienced by its parent bank last month.
The Northern Rock Foundation receives five per cent of the Northern Rock bank’s pre-tax profits each year, amounting to £192million ($384m) since 1998.
The Bank of England was obliged to guarantee all Northern Rock’s deposits last month after a banking run threatened the survival of the UK’s fifth largest mortgage lender. The most likely outcome now appears to be the sale of Northern Rock to another bank. However the foundation, which was established under the terms of Northern Rock’s conversion from a building society to a public limited company in 1997, owns non-voting and non-dividend paying shares in the bank that will convert into 15 per cent of the ordinary share capital of Northern Rock in the event of a change of ownership.
If the bank were sold at the current (late September 2007) share price of £1.72, the foundation would receive £109m, which is £686m less than if a sale had taken place in February, when the share price stood at £12.58, although an acquirer may choose to provide further support.
Fiona Ellis, director of the foundation, told EP it had £30m–£40m in reserves which will allow grant-making to continue. However, she added: ‘We are not going to give a prognosis because that would be fairly fruitless. We don’t know what’s going to happen and we can’t affect what’s happening anyway.’ The foundation is a major giver in north-east England, with more than half of voluntary bodies there having received its support.
The Northern Rock Foundation receives five per cent of the Northern Rock bank’s pre-tax profits each year, amounting to £192million ($384m) since 1998.
The Bank of England was obliged to guarantee all Northern Rock’s deposits last month after a banking run threatened the survival of the UK’s fifth largest mortgage lender. The most likely outcome now appears to be the sale of Northern Rock to another bank. However the foundation, which was established under the terms of Northern Rock’s conversion from a building society to a public limited company in 1997, owns non-voting and non-dividend paying shares in the bank that will convert into 15 per cent of the ordinary share capital of Northern Rock in the event of a change of ownership.
If the bank were sold at the current (late September 2007) share price of £1.72, the foundation would receive £109m, which is £686m less than if a sale had taken place in February, when the share price stood at £12.58, although an acquirer may choose to provide further support.
Fiona Ellis, director of the foundation, told EP it had £30m–£40m in reserves which will allow grant-making to continue. However, she added: ‘We are not going to give a prognosis because that would be fairly fruitless. We don’t know what’s going to happen and we can’t affect what’s happening anyway.’ The foundation is a major giver in north-east England, with more than half of voluntary bodies there having received its support.
see also page eleven
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