Northern Rock to deliver outline business plan to the EU

Chancellor Alistair Darling is to submit to Brussels tomorrow formal notification that he wants to continue giving state aid to Northern Rock as part of proposals expected to include a drastic reduction in the size of the bank’s mortgage book and heavy job losses.

The full proposal may not be presented by Ron Sandler, the bank’s chairman, until early next month, when the Chancellor is also expected to make a Commons statement.

It is believed that the crisis-torn bank will repay approximately £10 billion of its £24 billion Bank of England loan in 12 months, indicating that its balance sheet is likely to be reduced aggressively.

The bank is also looking at using its strong links with mortgage brokers to encourage existing customers whose fixed-rate mortgage deals expire to refinance with other banks.

Since last September, the bank has been doing very little new mortgage business and so far this year, its mortgage lending has been an estimated 10% of the volumes it lent one year ago.

The bank, which has an efficient mortgage processing system, is believed to be exploring options to allow rivals to use its resources.

The bank has expanded its workforce aggressively in recent years in line with mortgage volumes. For example, in 2002 it employed 3,800 staff. Currently, there are 6,500 employees.

To save jobs, the bank is looking at offering administrative services to other lenders in return for a fee.

After rejecting takeover bids from the board of Northern Rock and a consortium led by Sir Richard Branson’s Virgin Group, the Government rushed through legislation to nationalise Northern Rock last month.

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