Northern Rock sinks again as losses widen

Another huge loss for poor old Northern Rock, after bad loan charges soared to £600m in six months.

Last Updated: 31 Aug 2010

Taxpayer-owned bank Northern Rock said today that it made a loss of £724m in the first six months of 2009, an even worse result than the dismal £585m loss it posted in the same period last year. And no prizes for guessing why: those dodgy loans it doled out at the height of the boom are coming back to haunt it, forcing it to write off over £600m in the first half alone. The Government may have already got back £16bn of its £27bn loan, but it’s come at a price: the Rock has been left with a weakened balance sheet, making extra lending more difficult. All of which presumably scuppers any hope of a quick sale…

Let’s start with those bad loans: Northern Rock said today that nearly 4% of its borrowers were now at least three months behind on their mortgages. That’s more than 1.5% higher than the national average (and over 2.7% more than Barclays confessed to yesterday). And no wonder, since some of the Rock’s deals allowed borrowers to take out loans worth up to 125% of a house’s value. All in all, this forced it to write off another £602m in bad loans, more than three times as much as last year. However, it is less than the £703m write-off it made in the second half of 2008, so at least the number’s going in the right direction. And the Rock said today that it’s seeing signs of improvement – so the figure could start dropping in early 2010.

In some ways it’s hardly surprising that the arrears rate is so far above average. Because the Rock was under so much pressure from the Government to repay that big loan, it was forced to sell on some of its more credit-worthy customers to other banks – inevitably leaving it with the dross that nobody else wanted. This also made it extremely difficult for the bank to comply with the Government’s other wish, to boost lending. The Treasury eventually cottoned on to this and stopped demanding its money back – but even so, the Rock said today that new lending for 2009 would fall short of its £5bn target by about 20%.

Now the Rock has to wait and see whether the EU will allow it to hive off its worst assets into a so-called ‘bad bank’, as part of a restructuring that will pave the way for an eventual return to the private sector. CEO Gary Hoffman insisted today that there was no timetable for this, and we’re not surprised: while the bank is so far in the red, the taxpayer is presumably sitting on a hefty loss. And unless he can clean up the books and get the Rock back into the black, that’s presumably going to continue. So hopefully the Government will forget any ideas of a quick vote-grabbing sale before the General Election...


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