Northern Rock bad bank repays £1bn...

THE taxpayer has been repaid £1.1bn by the Northern Rock “bad bank”, which swung into profit last year.

UK Asset Resolution (UKAR), the entity that now owns what were considered the more toxic assets of Northern Rock and Bradford & Bingley, reported combined full-year profits of £477.5m yesterday, versus losses of £480m last year.

In addition, UKAR made one-time gains of £1bn by buying undervalued assets during the year. The banks also cut costs and saw the quality of their mortgage books improve, with customers making significant progress on paying back their loans.

The “bad bank” recovery is an ironic counterpart to the £232.4m in underlying losses reported by the Northern Rock “good bank” for last year.

UKAR’s £1.1bn repayment of government money makes only an incremental dent on the total £48.7bn loan, with B&B failing to pay back any of its £27bn credit.

But B&B has benefited from borrowers bearing down on their late mortgage payments. The number of mortgages in arrears on its books fell 32 per cent to 13,096 and the number of houses in its possession dropped from 962 to 623.

At Northern Rock Asset Management (NRAM), which consists of what were thought to be the most toxic parts of Northern Rock, mortgage arrears rose by three per cent, but this marked a substantial slowdown in late payments on 2009, when the number in arrears jumped by 18 per cent. It also cut down the number of houses it owns from 1,984 to 2,061.

Despite the improvement, however, UKAR chief executive Richard Banks warned that 2011 could prove more difficult: “The uncertain economic environment, increases in taxes, inflation and unemployment will, inevitably, impact our customers and results.”

Banks reiterated UKAR’s focus on running down the original £110bn balance sheet of the two banks. Northern Rock Asset Management’s balance sheet fell by £3bn to £11.3bn last year, while B&B reduced its assets from £6.3bn to £5.7bn.

Underlying profits at the banks, which are still run as separate entities, were £200.1m at B&B and £277.4m at Northern Rock Asset Management.