The head of Northern Rock today said it was “in the commercial interests” of the publicly-owned lender to continue sponsoring Premiership football team Newcastle United.
The bank’s current deal with the club runs until 2010, but executive chairman Ron Sandler said there were no plans to ditch the contract, despite the deal effectively involving taxpayers’ money.
Mr Sandler’s comments came as he said housing market gloom could put plans for the bank’s recovery under strain if house prices were to decline “five, 10, 15%”, although he believes the bank will break-even in 2011.
Northern Rock will also continue its sponsorship of rugby team Newcastle Falcons although it is axing deals with county cricket clubs Middlesex and Durham, Mr Sandler said.
He told MPs: “We have already ended a number of sponsorships that I inherited... but we have chosen to continue the sponsorship of Newcastle United and Newcastle Falcons, partly because of commitments we have entered into there - sometimes sponsorships continue until they come to a contractual end – and partly because I believe it is in the commercial interest of the bank that we should continue with both of these.”
Northern Rock refused to comment on the value of the current sponsorship, signed in 2005, although Newcastle United’s commercial revenues of £25.7m (€32.2m) in the 11 months to June 30 2006 were “enhanced by the impact of improved deals with the club’s two main sponsors Adidas and Northern Rock”, according to the club’s annual report.
Mr Sandler – running the bank on an arm’s length basis for the Government after it was taken into public ownership in February – told MPs that it was essential to “maintain the roots and connections” of the business with the North-East.
He added that the Northern Rock brand would eventually need “invigorating” but was not damaged beyond repair.
“We have conducted a number of exercises to establish attitudes towards the brand... whilst damaged it is not damaged irreparably, we are happy to continue using the brand.”
But the company is currently in consultation with trade unions over axing 2,000 jobs – around a third of the staff – most of which will go this year in a blow to the region.
Mr Sandler is charged with cutting Northern Rock’s mortgage book by around half and paying off the billions owed to the Bank of England since last year’s run on the lender, which was hit by a funding crisis after its borrowing costs soared in the credit crunch.
The lender currently owes £24.1bn (€30.2bn) after paying off £2.8bn (€3.5bn) since the beginning of the year. It plans to repay the entire loan by the end of 2010 and remove Government guarantees by the end of 2011.
The group’s chief financial officer, Ann Godbehere said Northern Rock had stress-tested its current business plan against the recession seen in 1992.
This scenario would see at most a six-month delay in the repayment of the loan, although the Government guarantees currently protecting the payments of depositors would have to remain in place for longer, she added.