Video Script - Have Northern Rock lost their minds?
John Fitzsimons can't see how Northern Rock can possibly justify dishing out £10m on sponsoring Newcastle United.
Hi, I'm John Fitzsimons from lovemoney.com, and today I'd like to ask whether the people running Northern Rock have completely lost their minds?
You remember Northern Rock, that lovely former building society which messed up its business model, leading to the first run on a bank in over 100 years, and pictures everywhere of pensioners queuing round the block to take out their life savings. The Northern Rock that was only saved from going bust by me and you?
Well, that very same Northern Rock has done something unutterably stupid. Again.
Last week it was announced that Northern Rock had renewed its contract to sponsor the football side Newcastle United.
Call me crackers, but I thought Northern Rock's priority was paying back the enormous sums it still owes to the public purse, not chucking money away in a sports sponsorship deal.
And it's not like the deal is cheap either. It comes into force at the beginning of the 2010/11 season, by which time Newcastle will in all likelihood be back in the Premier League. Should the club stay there for the full four years of the contract, the deal will be worth a whopping £10m.
This is an absolutely disgusting waste. Northern Rock has defended itself saying that 'brand awareness' is an important factor in the bank's plans. Believe me, it will take many of us an awful long time to forget the brand Northern Rock - we don't need any helpful reminders the next time a Newcastle game is featured on the box.
I had no problem with the Government bailing out Northern Rock - it was the right thing to do in the circumstances, just as it was right to take a controlling stake in the Royal Bank of Scotland.
But once those banks are owned or at least run by the Treasury, its main aim has to be paying back its debts and moving out of public ownership. And I just don't see how sponsoring a football club - particularly one with such a long history of underachievement - will help it to do that any quicker. That money would be far better spent providing some more competitive products!
That's it for me for today, thanks for watching lovemoney.com.
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All, I firmly believe that sponsering Newcastle United is a positive sign for good things to come from Northern Rock, having been associated with the Bank for some 7 years I think this is a possitive step in the right direction for them. Cheers L/G
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Quite right, advertising costs money and is expensive. Publicity is free and with Northern Rock in the news; they can get 10 million pounds worth of free publicity easily. I would do something radical like paying savers decent interest rates, cancel all advertising, cut bonuses for executives or scrap them. Tell the Bank of England they are idiots and ignore them and their quantitative easing. get money from savers and loan it out at sensible interest rates. Most credit cards now have a 16% interest rate on. If Northern Rock did cards at 16% and paid savers 8% people would queue up to deposit with them and I think the margin between 8% and 16% should allow them to make a bit of profit. Online banking is now cheap to run, it's not like having a branch on every High street around the country. They could even go really radical and clear Bacs payments fast say in an hour on current accounts; that would make them super competitive and give Santander and the Spanish invasion something to think about. Realism in banking; a whole new concept...
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For the Northern Rock to continue it's growth to profitability it must advertise and being a Northern based bank with roots sponsoring the Newcastle football team it is common sense. How much would it cost to run TV ads for a season? Which will likely anger a lot of non - football fans. If a business, which is what Northern Rock is, wishes to gain customers, it must advertise. As to taxpayer money again, yawn, due to profitability they are paying that money back quite nicely. This is the first step towards sustainability, they are a small bank that got caught with their pants down, if you want a 'tax bailout' hunt, why not go for the mega banks, multi owned that dwarf the amount of cash Northern Rock still owe.
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09 February 2010