N.Rock Posts Loss, Says to Repay UK by 2011


Northern Rock, the British government-owned bank, said it made a 168 million pound ($334 million) loss last year, swinging almost 800 million pounds from its 2006 profit due to costs related to its funding crisis and higher losses on risky assets and home loans.

Britain's biggest casualty of the global credit crisis on Monday pledged to limit its share of UK retail deposits and new mortgage business so it doesn't get an unfair advantage.

Northern Rock, which was nationalized last month after borrowing 27 billion pounds in emergency funds from the Bank of England, said in its 2007 results it expects to remain "significantly loss-making" in 2008, but break even in 2011.

Britain's fifth-biggest mortgage lender said its BoE loan had dipped to 24 billion pounds and should be repaid by the end of 2010.

The bank reported a statutory loss before tax of 168 million pounds in 2007, compared with a profit of 627 million in 2006.

It blamed the loss on costs related to a five-month strategic review, losses on risky assets whose value has been hit by financial market turmoil, and high bad debts on mortgages and unsecured loans as the housing market deteriorated.

Former CEO Pay-Off

Ron Sandler, the troubleshooter running Northern Rock for the government, earlier this month unveiled plans to cut 2,000 jobs and shrink its lending book to about 50 billion pounds by the end of 2011, from 107 billion.

It said on Monday it aims to redeem about 60 percent of mortgages when they come up for renewal, and will also discontinue unsecured and commercial lending.

Finance Minister Alistair Darling said the bank will maintain, but contract over time, its Granite securitization vehicle.

Northern Rock said it will limit its share of retail deposits in the UK to 1.5 percent and in Ireland to 0.8 percent, and will not rank in the top three of "best buy" tables for major savings products this year. 

Rivals had been concerned that state-ownership would give the bank a competitive advantage.

The Newcastle-based lender said 12.2 billion pounds of retail savings were withdrawn last year, after thousands of customers queued for hours over a four-day period after its emergency loans were revealed.

It was the first run on the deposits of a major UK bank for over 140 years.

The bank will now limit its share of gross mortgage lending to 2.5 percent, it said, compared to its estimated 8 percent share of the overall mortgage market.

Its net lending last year was 12.2 billion pounds, down from 16.6 billion in 2006, after a sharp slowdown in the second half.

Net lending had raced to 10.7 billion by mid-2007, giving it a 19 percent share of the UK market, as it aggressively pursued business until its business model collapsed when it was unable to raise funds in financial markets.

In its annual report also released on Monday, Northern Rock said its former chief executive, Adam Applegarth, the architect of its model, will be paid 760,000 pounds for the termination of his contract last December. Applegarth was paid 723,000 pounds in salary for last year up until his exit.