Future looks brighter for Northern Rock and Barclays

Despite its rotten loan book, Northern Rock looks a lot healthier - while Barclays is eyeing the US again...

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Last Updated: 31 Aug 2010

Things seem to be looking up for Northern Rock: the state-owned bank saw its losses narrow to £257m last year, well down on the eye-watering £1.4bn loss it chalked up in 2008. But there was a reminder today of just how it got into this mess: more than 4% of its mortgage borrowers are now three months behind on their repayments, which is well up on last year and well ahead of the industry average. Meanwhile at the other end of the spectrum, Barclays apparently wants to capitalise on its relative strength with a big push into US retail banking – which would also make it less reliant on its mega-rich investment bankers…

Today’s figures show just how recklessly Northern Rock was lending before everything went pear-shaped: impairment charges climbed above the £1bn mark in 2009, while the number of residential customers more than three months in arrears jumped from 2.92% to 4.28%. That’s nearly 23,000 people. And guess what? Its Together product – which allowed people to borrow up to 125% of the value of their house – has been hardest hit, with more than 6% of customers in arrears. What are the chances?

On the other hand, CEO Gary Hoffman does seem to be getting the Rock’s house in order: he hived off most of these dodgy mortgages into a so-called bad bank at the start of this year, and he’s apparently slashed the cost base by a third – as a result of which it’s actually beating its Government-imposed financial targets (it even made a top-line profit in the second half of last year, albeit thanks to some one-off credits). Nonetheless, the fact that the loss-making bank is shelling out £15m in bonuses to its staff (apart from Hoffman, who’s done the decent thing and waived his) has caused a few ructions.

No such worries for Barclays: flushed with the success of its opportunistic deal for Lehman’s US investment banking arm (which has turned out to be a huge money-spinner), Barclays is now thinking about buying a big retail bank across the pond, according to today’s FT – SunTrust and Bancorp have both been mentioned in dispatches, but there’s no shortage of banks going cheap State-side. As well as being a great opportunity for expansion, this would also make Barclays less reliant on its booming investment banking division.

In other City news, the pound took another hammering today after weaker-than-expected figures from the manufacturing sector – industrial output was actually 0.4% lower than it was in December, the biggest monthly drop since last summer. Naturally this is all being blamed on the snow (blah blah blah); although if the removal of VAT stimulus was also significant, that paints a rather more alarming picture of our underlying economic health. Either way, it pushed the pound down another half a percent against the dollar. At this rate, you’ll need to be a millionaire to go to Disney World this summer.


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