Northern Rock loss hits £585m
Tuesday, 05 Aug 2008 20:02
Rock losses over £500m
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.
However, figures speculating as many as a fifth of the bank's customers could slip into negative equity were "plucked out of the air" according to the bank.
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.
Yet, losses were "always expected" in the earlier years of temporary nationalisation, due to the bank's adverse credit position, restructuring costs and a slowdown in lending.
The government is also expected to inject £3 billion into the bank – in the form of a debt for equity swap - 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.
However, the timing and amount of the swap "is not yet finalised," explained Mr Sandler.
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.
Northern Rock expects the property market to remain "very soft" for the foreseeable future, but refused to place figures on any potential further slowdown.
Despite 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.