Secret bonuses double salaries of Northern Rock staff

[contracycle]

yep the "winners" certainly do take it all....

Secret bonuses double salaries of Northern Rock staff (while our billions are propping it up)
By GLEN OWEN

Senior staff at beleaguered Northern Rock have received secret bonuses doubling their salaries – at a time when the bank is being propped up by billions of pounds of taxpayers' money.

Last night shareholders and customers condemned the decision to 'reward' the people involved in the biggest banking crisis in modern British history with annual payouts of up to £100,000 each.

They accused the recipients, who range from senior managers to management board directors, of siphoning money out of the bank as it hovers on the brink of collapse.

The confidential payouts, which total £2.3million for this month alone and were known about by the Treasury, are detailed in company documents seen by The Mail on Sunday.

The disclosure will put further pressure on the bank's management as it prepares for an emergency shareholder meeting on Tuesday.

It will also add to the Government's political difficulties over the issue.

As Chancellor Alistair Darling battles to avoid the "nuclear option" of nationalising Northern Rock, City experts are warning that Britain's international reputation for economic management is being seriously damaged.

In a letter to senior staff on December 20, chief executive Andy Kuipers said the bank's board of directors had agreed "an enhanced remuneration package" for employees deemed "essential to our continuing excellent operational performance".

He said they will receive a bonus amounting to a quarter of their gross annual salary every three months – effectively doubling their pay if they are paid the bonus for a year.

The arrangement can be withdrawn only with three months' written notice, so the employees are guaranteed at least six months' extra pay.

The payouts are capped at £25,000 per quarter and take effect from this month. The formula means that some staff – those earning £100,000 or less – could double their pay.

Mr Kuipers, who replaced Adam Applegarth as chief executive last month, stressed that the arrangement "will not be offered to the generality of staff and, as such, must remain absolutely confidential to yourself and not be discussed with others.

"If you do discuss the existence of this bonus to any third party then you will forfeit your entitlement."

So far, 173 staff out of a workforce of 6,000 have been awarded bonuses.

These include £19,500 to Derek Robinson, the head of credit investments, and three management board directors who are said to have reported directly to Mr Applegarth – Michael Smith, Lesley Sewell and Nigel Mushens. They each received the maximum £25,000.

Carl Flinn, who took over from treasurer Keith Currie in October, also received a £25,000 bonus, as did Paul Rippon, who has the unfortunate title of operational director (credit risk).

Last night Brian Giles, Northern Rock's communications director – who also received £25,000 – said: "We never comment on confidential internal matters."

Later, he called back to say: "As part of the company's stabilisation process, it has implemented a retention policy for a number of staff with particular technical or specialist skills.

"They are deemed essential to the immediate and ongoing stability and operational effectiveness of the company.

"The board considers this to be responsible and prudent business practice, particularly given our current situation, and is a matter on which the tripartite authorities have been fully appraised."

The tripartite authority is the name given to the regulatory powers of the Treasury, the Bank of England and the Financial Services Authority when used in unison. The FSA regulates the providers of financial services.

Mr Giles added: "The retention scheme was implemented by the board before the appointment of Andy Kuipers as chief executive."

Asked to confirm that a system which paid a bonus of a quarter of their salary every three months allowed workers earning £100,000 or less to double their salary, Mr Giles said: "I will not be going into the confidential details of the package."

Philip Hammond, Shadow Chief Secretary to the Treasury, said: "This desperate move to hang on to key staff adds yet more to the mounting cost of Alistair Darling's dithering and delay over Northern Rock.

"Every pound spent in this way is a pound of taxpayers' money less likely to be repaid."

The turmoil began in September when Northern Rock was forced to borrow £3 billion from the Bank of England after running out of liquidity as a result of its exposure to high-risk sub-prime mortgages in America.

The news led to panic among its customers, and the following day people queued around the block to withdraw their savings, taking out more than £1billion in a day.

As the panic spread, and with the share price in freefall, Mr Darling said the Government would guarantee all deposits held at the bank.

The Rock owes £26billion to taxpayers, and that could rise closer to £50billion if a buyer cannot be found.

Yesterday, a Northern Rock employee who missed out on the bonuses said attempts by the company to keep the payments quiet was an attempt to "buy people's silence".

He said: "It has really damaged morale on the ground floor. Since the trouble started they have cut loads of short-term contracts and ended placements – but they are paying out these sums to the top people.

"A friend who has just had his contract stopped could have been paid for six months out of just one of his boss's bonuses.

"It is robbing the poor to pay the rich, and the fact they have made such a clumsy attempt to keep it quiet shows how guilty they are."

The Chancellor has set a deadline of the end of February for the withdrawal of Government support for the bank.

But hopes that the private sector would come to the rescue have receded after a cooling of interest from Sir Richard Branson's Virgin group and other potential bidders.

The extraordinary meeting of shareholders on Tuesday has been called by two hedge funds, RAB Capital and SRM, which between them own almost 18 per cent of Northern Rock.

With fears growing that Mr Darling will be forced to liquidate Northern Rock, nationalise it and sell off the assets, the investors are demanding that the Government give them a say in the bank's fate.

Ministers' embarrassment has been compounded by a leaked memo from Jim O'Neill, the chief global economist at Goldman Sachs bank, which said Britain's reputation as the world's leading financial centre has been "badly dented" by Northern Rock.

His warning that it could inflict as much damage on the economy as the Black Wednesday meltdown in 1992 is galling for Ministers because the bank is advising the Treasury over the disposal of Northern Rock.

Last night Matthew Elliott, of the Taxpayers' Alliance, said: "With taxpayers having lost so much money in the Northern Rock crisis and being liable for many billions more, the top officials at the bank shouldn't be receiving a penny in bonuses.

"This is a typical case of a few fat cats living large at taxpayers' expense while ordinary families are expected to foot the bill."

Robin Ashby, of the Northern Rock Small Shareholders Association, said:

"While there is some argument for a few key talents to be paid retention bonuses, these sums would appear to be disproportionate, to put it mildly.

"That – and the secrecy involved – highlights the directors' poor stewardship of the company."

The Treasury is lining up the former boss of Lloyd's of London, Ron Sandler, to lead Northern Rock if it is nationalised.

http://www.mailonsunday.co.uk/pages/...n_page_id=1770

[contracycle]

SONG TO THE MEN OF ENGLAND
(Shelley/Sullivan/Heaton) 1818/1995

Men Of England, wherefore plough
For the Lords who laid you low?
Wherefore weave with toil and care
The rich robes your tyrants wear

Wherefore feed and clothe and save
From the cradle to the grave
Those ungrateful drones who
Drain your sweat - nay drink your blood

Have ye leisure, comfort, calm
Shelter, food, love's gentle balm?
Or what is it ye buy so dear
With your pain and with your fear

The seed ye sow, another reaps
The wealth ye find, another keeps
The robes ye weave, another wears
The arms ye forge, another bears

Sow seed - but let no tyrant reap
Find wealth - let no impostor heap
Weave robes - let not the idle wear
Forge arms - in your defence to bear

With plough and spade and hoe and loom
Trace your grave and build your tomb
And weave your winding sheet till fair
England be your sepulchre

[Fredfredson]

2-Investors brace for bank losses in pivotal week

01.14.08, 7:27 AM ET

http://www.forbes.com/reuters/feeds/...-WRAPUP-2.html

(Adds further report on Citi in 10th paragraph, Libor rates)

By Mike Peacock

LONDON, Jan 14 (Reuters)

Major American banks are expected to unveil substantial losses and secure more cash from abroad in what is shaping up to be a pivotal week for the global credit crisis, with central banks also poised to weigh in again.

Citigroup Inc. (nyse: C - news - people ) could write off as much as $24 billion and lay off 20,000 workers in a drive to cut costs and boost capital, CNBC said on its Web site in a report dated Sunday.

CNBC said the plans will be unveiled on Tuesday when Citi, the largest U.S. bank by assets, reports fourth quarter results.

Investment bank Merrill Lynch (nyse: MER - news - people ) is just as troubled.

The Financial Times said on Monday that Merrill was seeking about $4 billion in a second capital raising, and the Kuwait Investment Authority was expected to be a significant investor.

A deal could be announced as soon as midweek, the paper said, citing people familiar with the matter.

The New York Times on Friday reported Merrill was expected to suffer $15 billion in losses stemming from bad mortgage investments, when it releases its results later this week.

The FT also reported on Saturday that Citigroup was putting the final touches to its second big fundraising, seeking up to $14 billion from Chinese, Kuwaiti and other investors.

The $200 billion Kuwait Investment Authority had no immediate comment on Monday on the reports it may buy into the two damaged American banks.

But the Wall Street Journal said Citigroup's plan to sell a $2 billion stake to China Development Bank may be in jeopardy due to Chinese government opposition.

Banks, wrestling with huge losses stemming from U.S. mortgages lent to people ill-equipped to repay them, have been seeking cash from sovereign wealth funds.

In December, Merrill secured as much as $7.5 billion by selling a stake to Singapore's government and an asset manager. The month before, Citi agreed to sell up to a 4.9 percent stake to Abu Dhabi for the same amount.

CENTRAL BANKS BACK

As well as Merrill and Citi, other big names such as State Street and JP Morgan report results this week.

Furthermore, the Federal Reserve will auction $30 billion later on Monday and the European Central Bank and Swiss National Bank will continue their unprecedented U.S. dollar lending to banks, as part of ongoing coordinated central bank efforts to help calm credit market tensions.

The Bank of England will also weigh in.

Results of the latest "term auctions", a plan agreed in December and one which has helped money market rates ease, will come on Tuesday.

Most experts say despite the central bank action, the threat of further losses at major banks from investments tied to U.S. subprime mortgages means the crisis is far from over as crucial lending between commercial banks remains patchy at best.

The Fed is forecast to use its other policy lever -- interest rates -- before the month is out.

It is seen slashing rates by a half-point to 3.75 percent at its two-day meeting ending on Jan. 30 after Fed Chairman Ben Bernanke said last week the central bank was ready to take "substantive additional action".

The interbank cost of borrowing dollars fell sharply on Monday as financial markets continued to bet heavily on aggressive U.S. rate cuts.

Three-month dollar Libor rates fell more than 20 basis points, the biggest one-day fall since Sept. 19, the day after the Fed slashed its key rate 50 basis points to 4.75 percent. Three-month euro Libor was fixed lower at 4.54813 percent but one-month rates edged up marginally.

The ECB and Bank of England declined to cut rates at meetings last week although credit problems in Europe persist.

"It's not yet clear what impact the financial turmoil will have on the real economy. We are going through a delicate phase. This is not the time to lose control of salaries and costs: we would further lose control on inflation," ECB Executive Board member Lorenzo Bini Smaghi told Italy's La Repubblica newspaper.

Swiss banking giant UBS (nyse: UBS - news - people ) AG appealed to its shareholders last week to back a capital injection by the Singapore government and a Middle East investor and warned it still could not predict how the subprime crisis will play out.

And shares in stricken British lender Northern Rock fell as much as 7 percent on Monday, on fresh concerns it faces imminent nationalisation.

Northern Rock is Britain's biggest casualty of the credit crunch and has borrowed around 26 billion pounds from the Bank of England since it requested emergency funds in September.