3.8 The Treasury approved a new business plan from the newly installed management team on 31 March 2008, less than six weeks after being taken into public ownership. The timetable was driven by the need to submit an approved plan to the European Commission by the end of March ahead of the latter's State Aid investigation which was scheduled to begin in April.
3.9 The strategic aims underpinning the business plan included a rapid repayment of debt and the establishment of a viable private sector entity. To achieve these aims, existing mortgage customers coming to the end of introductory fixed-rate terms would be encouraged to move to other lenders, with the resultant repayments of capital used to repay the Bank of England. At the same time, Northern Rock's reliance on wholesale sources of funding would be reduced, with a greater proportion of funding raised from retail deposits. The detailed targets were:
■ a reduction in assets from £109 billion in 2007 to £51 billion in 2011;
■ retail deposits to grow from £10 billion in 2007 to £20 billion in 2011;
■ new mortgage lending to fall from £30 billion in 2007 to around £5 billion a year in 2008-2011;
■ a reduction in running costs of 20 per cent including a fall in staff numbers from 6,345 in 2007 to 4,069 in 2011.
3.10 The plan envisaged that emergency support from the Bank of England would be repaid by around the middle of 2010, and that the Treasury's guarantee arrangements would be removed by the end of 2011. Thereafter, the company would enter a period of modest growth followed by an exit from public ownership, through a sale or flotation.
3.11 The plan was developed by the company using a number of stress tests including:
■ further substantial outflows of retail and wholesale funds over periods of up to one year;
■ a downturn in the economy leading to increased arrears, repossessions and losses, with a house price fall like that of the early 1990s, the latter was considered by the Financial Services Authority as an appropriate downside case;
■ the possibility that there would be unforeseen costs not included in the base case and that the Granite securitisation vehicle might have to be wound down (known as "pass through") if, for instance, losses exceeded a certain level.