Northern Rock may well be better known for its history in the mortgage business, but it has a whole raft of products on offer to customers, including a just launched Issue 2 of the Little Rock Fixed Rate Bond.

Its mortgage business aside, Northern Rock has been a major player in the children’s savings bond market and the launch of Issue 1 of the Little Rock Fixed Rate Bond, which was originally launched in early August, was a great success.

Northern Rock are keen to point out that Issue 2 of the Little Rock Fixed rate Bond is a three-year investment vehicle and offers a highly competitive rate of interest for only a one pound minimum deposit.

Anyone under the age of 16 can open an account, accompanied by the name of an adult acting as account trustee. Those holding an account are known as ‘Little Rockers’.

Those wishing to open an account can do so from a branch of Northern Rock, or via a postal application. A choice of free gifts are also available for those opening a new account.

Cash, cheque, or transfer can be used to open an account and no more than £20,000 can be paid in. Withdrawals are not permitted before 1 October, 2013, the time when the account reaches maturity. Northern Rock reminds its customers that the account is a limited issue which can be withdrawn from new entrants at any time. Also, the account is non-redeemable.

Interest is paid annually on 31 August and is offered at 4% gross per annum.

Given its recent difficulties and track record in the mortgage business of the original Northern Rock, it’s no surprise that the institution is at pains to highlight its new openness.

The announcement accompanying news of the Issue 2 of the Little Rock Fixed Rate Bond comes with the declaration:
“In keeping with Northern Rock’s commitment to providing openness, transparency, and fair treatment of customers, full product details for Northern Rock accounts are available on application in the Terms and Conditions.”

Guest Article by Neil Camp

The media thinking Tesco and Virgin are on the hunt for embattled public bank Northern Rock. Virgin has tried before of course and Tesco’s name has been cropping up of late as an interested buyer, adding to its move into retail banking proper.

The stories are growing in credence after leaks surfaced that the Government intend to way goodbye to the Northern Rock before the general election sometime before May 2010. Ministers want it back in public ownership before they go to the country and fight for their political lives.

But the two top brands might not have it all their own way, with many of the larger private equity funds said to be running their own slide rules over the Rock.

Tesco and Virgin remain tight lipped, preferring to stay mum over whether the Rock would make a good fit for their respective businesses.

Last year the Rock made a neat £1.5 million loss of provisioning for £1.15 billion of bad debts.

There has also been talk of the Financial Services Association (FSA) looking the other way when it comes to Northern Rock’s capital requirements. Claims have been made that the Rock is in breach of its capital requirements due to a loss of £500 million in the last six months.

This breach technically means it should not write new mortgages, or continue to manage existing mortgages.

And this is not the first time the FSA has obligingly turned a blind eye to the Rock’s precarious position. Last year they allowed the public bank to use tier two capital (a less secure form of financial reserve) to meet the regulatory requirements.

Now it appears that the Rock has admitted that it’s capital base has been: “…reduced to a level below its minimum regulatory capital requirement.” But went onto say that “…the FSA has confirmed that it does not currently intend to restrict the activities of the company while the plan is implemented to address its capital position.”

The plan referred to involves converting £3 billion of the taxpayer’s £14 billion loan into equity. A common debt for equity tactic that struggling companies use to stay afloat. To make such a move, the Rock will need to get state aid clearance from the European Commission.

But the Rock has a further trick up its sleeve in order to fully shake off the past.

Effectively two banks will be created. The first, a good bank, will enjoy the £10 billion of good loans, the branch network and deposits. A bad bank will get whats left: all the bad loans and similar detritus.

And it’s the good Rock bank of course that the likes of Tesco and Virgin are thinking of buying. The bad Rock bank looks likely to have very few fans of course.

Guest Article by Neil Camp

It’s quite appropriate that the Bank of England’s new way of trying to save the U.K. economy, quantitative easing, sounds like a brand of laxative.

The economy is literally bunged up and the Bank of England is hoping that an initial £75 billion will help matters, and if not, a further £75 billion will be made available.

So what is quantitative easing? It’s not quite a matter of simply printing new notes, as many critics are trying to suggest. That’s been recently tried in Zimbabwe and doesn’t work, causing rampant inflation. But the big problem for the U.K. is deflation, not inflation.

Quantitative easing is all about flushing vast amounts of money into the system.

Now, a few basics. The Bank of England controls the flow of money into the U.K. economy. It effectively sells money to the country’s financial institutions at a given rate: the interest rate. By repeatedly lowering the interest rate – at the time of writing it’s 0.5% – it has tried, and failed, to get the banks to pass cheap money onto its customers, both personal and business.

So, the main problem is the lack of credit. This is desperately needed by companies to fund their businesses and people to fund their daily lives, and the reduction of interest rates have not relaxed the credit supply log jam.

But quantitative easing is not about giving money away for free at the ATMs. The new money is effectively swapped for assets, both good and bad, which are handed to the Bank of England by the financial institutions in exchange for the bundles of cash.

Now, the great fear is that the banks will gladly hand over assets, a number of them toxic, in return for the cash which they will then use to rebuild their balance sheets. So, what you might find is that having received £75 billion, the banks are solvent again, but their customers are still starved of credit.

Furthermore, quantitative easing doesn’t have a great reputation, with the Japanese having used it to little effect in the 1990s. But, experts put that down to the Japanese using the tactic too late, a case of trying to shut the door long after the horse has bolted. It led to what the Japanese called a lost decade, as it struggled to cope with deflation.

So, the Bank of England has struck quickly, playing what pundits see to be the last card in the pack. If it works, it will stimulate the dying economy. It if doesn’t, it will have wasted billions of money which could have been used elsewhere. And it might cause sudden and rampant inflation from which it will take generations to recover.

But what might turn out to be the biggest criticism is why the Bank of England, and behind them the Government, doesn’t make the money available through a financial institution that will guarantee it goes to the right people.

The Government controls Northern Rock and, in effect, HBOS, so why cannot they be given the money and ordered to distribute it via loans and credit.

Cynics might say that Bank of England is stuffed full of bankers whose primary concern is to help other bankers, despite what the Governor might claim. Others might say that the Government cannot favour one institution over another and that legal claims from those left out of the bonanza might follow.

One thing is for sure though, if it doesn’t work, we may all have to await financial Armageddon.

Guest Article by Neil Camp