Northern Rock stems its losses
March 11th, 2010Northern Rock’s results are out. The bank lost £383m last year, compared with £1.36bn in 2008, so it seems it is slowly getting back on a more stable footing. At the start of the year, the Rock was split into two, with savers’ money held by a so-called ‘good bank’, Northern Rock Plc, which will eventually be sold back to the private sector, with potential bidders, perhaps late this year, expected to include Yorkshire and Clydesdale bank owners NAB and Tesco. There is apparently no timescale for any sale though. “I have set no deadlines and there is no rush,” said chief executive Gary Hoffman, while acknowledging that informal talks have been held.
Hoffman, who joined from Barclays in 2008, is forgoing his £700,000 bonus, which he was due to receive for the better than expected performance of Northern Rock, echoing the decision of the heads of Barclays, Lloyds and RBS, who also ignored there bonuses in the wake of public anger over the high level of remuneration in the industry, especially so soon after the taxpayer bail out of the financial system. Hoffman still picked up £1.1m in pay and compensation though, in part covering the share options he lost when departing Barclays. His long-term incentive scheme will only pay out ‘big money’ after the bank returns to profit or is sold, the company asserted. Other Northern Rock staff shared a £13.4m bonus pot, reflecting the fact that the bank beat its targets on cutting losses at the firm. The Treasury has originally expected the bank to lose over £800m last year; the extra £500m saved is largely going back to the taxpayer.
The bank said it had seen an increase in mortgage lending across 2009, while the amount of money people saved with the bank was largely unchanged. It added that the recession and higher unemployment levels meant the percentage of those borrowers more than three months in arrears with mortgages payments had risen to 4.28% by the end of the year – the equivalent of nearly 23,000 borrowers – compared with 2.25% a year earlier. This big jump in those defaulting on their home loans resulted in a rise in the Rock’s bad debts from £870m to £1.17bn. Most of the worst Together mortgages, which offered loans of up to 125% of a property’s vale will be left in the ‘bad back’ formed on 1 Jan 2010 though. The bank said its stock of repossessed properties fell to 2,061 by the end of last year, compared with 3,620 in 2008, reflecting a tolerant approach to repossessions.
With the reporting round now over, it is clear to see that things are improving in the industry – notwithstanding the ongoing problems at Lloyds and RBS – but it will still be a while before the entire sector fully recovers and, of course, the industry will look very different to how it was before the crash in 2008. There is though, at last, light at the end of the tunnel.
• In other news, the government earlier announced that savers with money in the Northern Rock would lose the government’s 100% guarantee on their deposits from 24 May. The announcement last month re-confirmed though that savers will still benefit from the £50,000 guarantee available to all under the Financial Services Compensation Scheme (FSCS).
