By Steve Slater and Clara Ferreira-Marques
LONDON (Reuters) - Paul Thompson, the man leading the bid to rescue Northern Rock
But the former investment banker told Reuters his plan to pull back from aggressive lending, halve the asset base and boost retail deposits would bring the bank back to its healthy levels of 2003, before an aggressive lending policy took it to near collapse last year.
Prime Minister Gordon Brown's Labour government wants a private sector solution to the crisis at Britain's fifth-largest mortgage lender, which has contributed to a slump in his popularity.
Virgin has been seen as the favorite to be picked, as it will inject more capital and rebrand the bank.
"I don't want them making the wrong decision just because the perception is wrong," Thompson said in his first interview since rescue plans were submitted on Monday.
"I am not here trying to win a PR battle. I am here to make sure that the facts are right and therefore the perception is right and then people can make the right decision for the bank, the financial community, customers, voters and the taxpayer."
The Newcastle-based bank owes taxpayers 25 billion pounds ($49 billion) after the government stepped in to prop it up last September. The Treasury has backed the funding plan for the repayment of the loan that will tie it to the bank's fortunes for several years.
Thompson said he was concerned the public regarded Virgin, a household name thanks to Branson's airline, music and media businesses, as the only genuine private sector solution.
"All the proposals are a public-private partnership," he said.
PRE-BUBBLE DAYS
Thompson's plan would reverse the lending boom seen in 2006 and early 2007 that triggered the bank's near collapse almost five months ago, when it suffered the first run on the deposits of a major British bank for over 140 years.
"All we're going to do is return this bank to what it was pre-bubble, to rein in the amount of lending that it does.
"We will still be doing new lending. It will be something like 2 to 3 billion (pounds) of new lending a year, so the concept of not moving forward is very wrong."
Thompson, who joined Northern Rock's board last month and will take over as chief executive if the in-house plan is selected, expects the bank's assets to roughly halve from its pre-crisis level of 113 billion pounds as it intentionally shrinks its mortgage book.
The bank will seek to rebuild its deposit base as a source of funding to replace capital markets, though it would not use its government support to compete aggressively with high street rivals for new mortgages or to attract savers.
"We can't have a lot of support from the government over the next three years and go out there distorting the market, that has to be wrong," he said.
Northern Rock's retail deposits have shrunk to about 10 billion pounds from over 24 billion before its crisis. Thompson expects current deposit levels to double under his plan, which should leave its funding split evenly between retail savings and wholesale funding.
"That will be a bank that looks, with the size of the assets, very much like it did at the end of 2003."
Bryan Sanderson, currently Northern Rock's chairman, would step down once the process of gaining European Union approval was complete and a new finance director will also come in, Thompson said.
"This is a new team and a new strategy and one that is properly geared towards a difficult environment," he said.
The former chief executive of insurer Resolution
He said his plans for more constrained growth would be similar to more cautious lending across the mortgage industry, where lenders are feeling the strain of higher borrowing costs and a slowing economy.
Management and new investors would not strike it rich if Northern Rock is revived, but they should be adequately rewarded, he said.
Under the plan Northern Rock would raise at least 500 million pounds in a share issue. Thompson said that would include bringing in some long-term institutions, who could expect to see annual returns of over 12 percent.
"There isn't going to be a killing here at all for anybody," he said. "There's going to be a commensurate return for investors who support the bank and put new money for the sort of risk and time horizon they are being asked to do that."
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(Additional reporting by Matt Falloon and Mark Potter; Editing by Mark Potter, Andrew Callus and David Cowell)
(clara.ferreira-marques@reuters.com; +44 207 542 3214; Reuters Messaging: rm://clara.ferreira-marques.reuters.com@reuters.net)
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