Northern Rock reports £585m loss

Tuesday, 5 August 2008 12:00 AM

Nationalised bank Northern Rock today announced a loss of £585.4 million for the first half of 2008.

The lender also reports a doubling in the number of mortgage borrowers falling into arrears on their home loans - up to 1.18 per cent of all loans.

Some 3,700 properties were repossessed in the first half.

Ron Sandler, executive chairman, admitted the bank had suffered from slowdown hitting the economy.

"The deterioration in the housing market and the broader economic environment, coupled with the evident stresses on household budgets as a result of rising food and fuel prices, have put pressure on the company's loan books," he said.

The government is also expected to inject £3 billion into the bank to boost the ratio of capital to assets ratio. While HBOS and HSBC have turned to shareholders to gain more capital, the only option for Northern Rock was to turn to the Treasury.

Alistair Darling told BBC Radio 4's Today programme: "It is worth reminding ourselves why we did this. There was a risk it might not have been Northern Rock but other banks could have gone under as well."

He added banks across the world are facing "difficult times".

However, the bank maintains the business plan developed after nationalisation is the correct one and says it is ahead of schedule on the repayment of its loan to the Bank of England.

The Novocastrian lender repaid £9.4 billion of its loan leaving £17.5 billion owed, compared with £26.9 billion at the end of December 2007. It plans to pay off the debt in full by 2010.

Northern Rock is currently suffering losses as it is actively aiming to take borrowers off its book, but only those with higher levels of equity behind them and better credit ratings are able to switch at the end of their fixed-rate deals.

However, those with less equity and poorer credit history are left on the bank's books.

Despite the the bad news to strike Northern Rock, savers are now returning to the bank.

Deposits rose £3.7 billion over the last six months from £10.5 billion to £14.2 billion - which is still substantially down on this time last year.

However, since the decision to stop Northern Rock having a competitive advantage over its rivals because of its state-ownership, savers have dropped away from the bank.

Daniel Barnes

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