Northern Rock improving despite losses

10 March 2010

Losses at nationalised bank Northern Rock shrank to £257.4 million last year as income levels picked up and bad loans lessened in the second half of 2009.

This compares to a £1.36 billion pre-tax loss in 2008 when the beleaguered lender was feeling the full force of the financial crisis.

Northern Rock, which was taken into government ownership in 2007, says mortgage lending has grown during the year although its savings levels remained flat. However, bad debts continued to rise, up to £1.04 billion from £894.4 million the previous year.

Chief executive Gary Hoffman says: “We made good progress in 2009, and finished the year significantly ahead of the agreed target.”

Northern Rock is currently around £500 million ahead of the targets set out by the government. The stronger performance led to the bank paying out £14.9 million in bonuses including £1.5 million in the government’s new banking bonus tax.

Some 32 staff have been awarded bonuses of more than £25,000. However, Hoffman – who was in line to receive a bonus when the bank returns to profit or when it moves back to the private sector, has followed the lead of other banking bosses by waiving his payout.

Northern Rock was formally split into a 'good bank' and a 'bad bank' on 1 January following its restructuring last year.
The new savings and mortgage bank called Northern Rock will be sold off later year to recoup some of the £26 billion of government money ploughed into the bank. This holds savings balances of around £19 billion and has around £10 billion of low-risk residential mortgages. The government recently announced that it will remove its 100% protection of savers money in Northern Rock from May.
Virgin, which recently received a banking license and National Australia Bank are among the frontrunners to snap up the ‘good’ part of the bank.
The bad bank, named Northern Rock (Asset Management) and chaired by Bradford & Bingley's Richard Pym, has a residential mortgage book of about £50 billion and £4.5 billion of unsecured personal loans. This remains in government hands and no longer offers new mortgages.

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