Half of Northern Rock’s new mortgages are still issued by intermediaries, and only 40% (Mintel 2006) of its new businesses are coming through its online marketing channels including the e-commerce terminals engineered to connect Northern Rock to its intermediaries and other mortgage distributor clubs. (Mintel 2005) Northern Rock is still developing these systems to secure its position in the online channel.
Management challenges – Recommendations Northern Rock should – in order to survive – build up significant liquidity reserves and immediately reduce the amount usually borrowing from money markets to finance its day-to day running. If about to borrow from the Bank of England, it should inform its customers in advance, as – amongst others – Barclay does. Northern Rock would possibly soon face increasing number of bad debts, repossessions and financial struggle. The recent years’ growth will probably be followed by uncertainty. In this period Northern Rock should review its business strategy and shift the emphasis on building long-term relationships with its customers helping them managing their finances more efficiently.
The bank should understand the needs of the new era, where it is increasingly difficult to raise the deposit required or to keep up repayments. It should make steps towards mutuality again. In these new times new programmes are needed to be set up, where certain customers’ credit-worthiness is measured in advance through other products in order to be rewarded with superior mortgage products. Private customers, especially first time buyers should get more attention, as most of the businesses would stop investing in the property market. Northern Rock should start helping its customers through the life of the financial product.
Being ethical, redistributing part of the profit is becoming the most valued attribute of a company. But purely donating 15% of share capital to The Northern Rock Foundation is not the way to do it. Although Norhern Rock is the second biggest donator in the FTSE100 index, it should also follow this approach in providing financial services. The mortgage market is price-sensitive, so the bank should redistribute some of its profit, and give back to the customers.
It has to set up schemes to encourage more people to sign up online for mortgage products by making it cheaper to do so than through financial advisors; so it could save the amount paid as commission. It needs to target the migrant population as this is the most significant one segment willing to buy if accessible constructions are available. It is not sufficient communicating, that Northern Rock’s Chief Executive, Adam Applegarth, started as a graduate trainee in the company, and his deputy was first a postboy. Northern Rock should provide the opportunity of self-development of its employees. It should rather invest in the development of its own staff, and make most appointments internally. This approach could form an efficient organisation.
Mortgage lenders are still likely to expand despite of the foreseen negative economical trends, as house prices are still likely to continue growing – probably at a slower rate. Profit margins are likely to shrink as numerous external effects will hit the markets. If rates go down, lenders would probably move out, although by the expected increase in house building, planned by the Government, the market could still be profitable.
As external factors change, the number of remortgaging would probably grow steadily in the next few years, although a slowdown in house prices’ growth could reduce remortgaging value. Other factors, as growing unemployment or high interest rates would contribute to a reduction in disposable income and an increasing burden of debt. All of these processes show, that only those banks could preserve profitability, that offer comprehensive debt management services as well as capable of choosing its customers through programmes, where they can prove, they are worth the partnership.
BBC NEWS 2007 The spill-over from the credit crunch [online] Available from: http://news.bbc.co.uk [Accessed at 12. October 2 007] NORTHERN ROCK: Company Info, 1997. Corporate Profile In Investor Relations [online] Available from: http://companyinfo.northernrock.co.uk/investorRelations/corporateProfile [Accessed at 23. October 2007]