Northern Rock reveals worse than expected loss

Northern Rock, which was nationalised earlier this year after the Government rejected takeover bids from the board of Northern Rock and a consortium led by Sir Richard Branson’s Virgin Group, has posted bigger than expected losses of £585.4 million for the first half of 2008.

The crisis-torn lender said the majority of the losses arose from the charges it takes to cover losses from mortgage borrowers defaulting on payments.

The Newcastle-based group said that the total percentage of its residential mortgage customers in arrears and being repossessed had increased considerably from last year.

However, it did state that it is making good progress repaying loans and has repaid £9.4 billion of a loan from the Bank of England, which now means it owes £17.5 billion.

As a result of a restructuring programme, the lender announced 2,000 job losses earlier this year but it was revealed last week that this has been reduced to 1,300.

It is also scaling back its mortgage range after reducing the number of its mortgage accounts by 15%, to 662,000 at the end of June compared to 777,000 at the end of 2007.

Furthermore, loans and advances to customers have also been trimmed back, by £14.5 billion in the first six months of 2008 to £84.4 billion.

Northern Rock’s loan losses escalated from £56.8 million in the first six months of 2007 to £191.6 million. It also incurred one-off expenses of £165.6 million, including a provision of £37 million for redundancies and £35.6 million in fees to City advisers.

Commenting on the results, Ron Sandler, Northern Rock’s executive chairman, said while the losses are likely to continue as the restructuring continues and as the credit environment remains challenging, I am optimistic that the foundations have been well laid for recovery and return to private ownership in due course.

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