Northern Rock chisels losses to £79m

Northern Rock PLC has made a significant dent in its losses, from £140m for the first half of last year. But will it work for its new owner?

by Dave Waller
Last Updated: 05 Aug 2011
The reduced losses at the nationalised bank came as a result of lower costs and a rise in income from interest on loans, especially mortgages. But before us taxpayers start rejoicing over getting something back for the £1.4bn we injected during the bank’s credit crunching troubles, we should note that the value of equity in the business is £1.1bn and falling. The volume of lending actually fell during this period, totalling £1.5bn in the six months to 30 June 2011, compared with £2bn the previous year. At least the bank reckons it will finally be trading profitably again – in the second half of 2012.

Still, things are moving faster in other areas – George Osborne said in June that he aimed to find a buyer for Northern Rock this year. The bid deadline ended last week, with Sir Richard of Branson’s Virgin Money looking set most likely to get the spoils: the ‘good bank’, which comprises new mortgages and savings. The government will continue to wind down and run off the toxic assets that make up the ‘bad bank’.

It’s three years after Branson’s last failed attempt to snap up Northern Rock, and if it does finally fall into his empire it would sit nicely along side Virgin’s existing savings and investment wing. But he’ll surely be seeking inspiration for how to get the ‘good bank’ functioning better. For that he may need to look eastwards: fellow City stalwart Standard Chartered is benefiting from its limited exposure to the mess in the Eurozone or US, and instead serving an Asia awash with new wealth and an Africa that’s booming on the back of commodities demand. Pre-tax profits for the first six months of the year were $3.6bn (£2.2bn), up 17% from last year – up 23% in Hong Kong and as much as 34% in Singapore.

How long till Northern Rock can get that kind of figure? There will be plenty of people upset that the Rock will never be a building society again – and given Moody’s current opinion of the UK’s other building societies that does seem unfortunate. The ratings agency has just upped its rating of Nationwide, Yorkshire, Principality and Coventry (the latter being the one building society that was most keen to buy Northern Rock, only to drop out fearing it couldn’t make enough money back for a competitive bid). In other words, building societies seem to be in a stronger profit position right now than the big banks, whose credit ratings are expected to drop if regulatory reform comes in removing the unpopular crutch of taxpayers having to bail them out should our financial rocks turn to jelly again.

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