Losses narrow at Northern Rock

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 the year.

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.

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

Total income climbed fourfold to £1.1 billion, including the £200 million it repaid the government.

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

Three month mortgage arrears also rose with 4.28% of its loan book, up from 2.92% 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 £500 million 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 £14.9 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.

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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