Northern Rock announces £592m loss

The nationalised British bank reports a net loss of £592 million, as mortgage customers fail to make timely repayments.

A man walks past a Northern Rock branch in Central London. The nationalised bank today announced a first half loss of £592m.

LONDON // The nationalised British bank Northern Rock today reported a net loss of £592 million (Dh4.2 billion) in the first half of the year, as mortgage customers failed to make timely repayments. Last year, the then-publicly listed company made a profit in the January to June period of £208m pounds. Northern Rock's total income plummeted from £520m in the first six months of 2007 to negative £39m pounds for the first half of this year.

The lender said that the number of mortgage borrowers falling into arrears on their home loans had doubled over the last six months to 1.18 per cent of all loans, forcing the bank to repossess 1,495 properties since January. The only silver lining to the earnings report was that the bank said it had succeeded in paying back £9.4bn pounds worth of its £26.9bn loan from the Bank of England, faster than expected.

Northern Rock said it was on target to repay its Bank of England loans by the end of 2010, as agreed under a salvage plan earlier this year. The mortgage lender, which was nationalised in February after suffering Britain's first bank run in more than a century, is struggling to get back on its feet. Last month it announced plans to lay off 1,300 staff as part of a restructuring plan. "While the losses reported today are likely to continue as the restructuring proceeds and as the credit environment remains difficult, I am confident that the foundations have been well laid for recovery and return in due course to private ownership," said the Northern Rock executive chairman Ron Sandler.

Northern Rock was bailed out with public funds after it was crippled by last August's freeze in money markets, where it had borrowed most of its cash for lending after years of rapid growth. The highest-profile British victim of the global credit squeeze, it had offered some of the country's most generous mortgage deals, advancing loans worth as much as 125 per cent of home values. The treasury chief Alistair Darling said today that the government had agreed to write off a further £3bn of Northern Rock's outstanding debt in order to strengthen the floundering bank's balance sheet.

The government plans to recoup some, if not all, of that money by charging a higher interest rate for the remaining loans. Mr Darling defended the taxpayer-funded bailout of the struggling bank. "If we had not intervened to save Northern Rock last September, there was a very substantial risk ... that it wouldn't just have been Northern Rock," Mr Darling told the BBC. "Other banks might have gone under as well."

*AP