Northern Rock losses narrow

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

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

Rock, which was taken into the government's arms in 2007, said mortgage lending had grown during the year, up from £2.9bn to £4.2bn, although savings levels remained flat at £19.6bn

Total income climbed fourfold to £1.1bn, including the £200m it repaid the government.

However, like at other banks, bad debts continued to rise, up to £1.04bn from £894.4m the previous year.

Three month mortgage arrears also rose with 4.28 per cent of its loan book, up from 2.92 per cent a year earlier although these showed signs of stabilising in the final quarter of the year after soaring in the first half.

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

Northern Rock is currently around £500m ahead of the targets set by the government.

However, Hoffman also warned that the outlook for the UK economy remains uncertain, with bad debts remaining stubbornly above normal for this year.

The stronger performance nevertheless led to the bank paying out £14.9m in bonuses including £1.5m 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 £26bn of government money ploughed into the bank.

This holds savings balances of around £19bn and has around £10bn of low-risk residential mortgages.

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 £50bn and £4.5bn of unsecured personal loans. This remains in government hands and no longer offers new mortgages.

NORTHERN Rock has reported a fall in its annual losses to £254.7bn last year.

That compares with £1.36bn in 2008 when the stricken lender was in crisis.

It said the number of mortgages it was processing was now going up while savings with the bank were static.

Northern Rock has been split in two with savers' money held by a "good bank", Northern Rock PLC, which will eventually be sold.

The group was handed billions of pounds of taxpayers’ money to keep it afloat.

Chief executive Gary Hoffman has waived his entitlement to a bonus.

The total bonus pot will be £14.9m.