Northern Rock posts £585m first-half loss

by Gill Montia

Story link: Northern Rock posts £585m first-half loss

Northern Rock has reported a £585 million loss for the six months to the end of June.

The bank, which has been government owned since February, said that bad debts on home loans more than doubled during the period.

The number of mortgages more than three months in arrears rose to 1.18% and the lender has warned that it is vulnerable to the housing market downturn because prior to the credit crisis it offered high loan-to-value ratios (up to 125%).

According to estimates, the practice could leave one in five of its borrowers in negative equity by the end of 2009.

The bank’s balance sheet also had to accommodate one-off expenses of £165.6 million in the first half of the year.

The figure largely relates to restructuring costs and includes a provision of £37 million for redundancies.

Northern Rock expects to return to profit in 2011 and to repay the government loan by the end of 2010.

So far, repayments to the Bank of England are ahead of schedule, with £9.4 billion knocked off its rescue loan during the first-half of the year, leaving £17.5 billion outstanding.

Meanwhile, the Treasury is offering further support in the form of a debt-for-equity swap could provide up to £3 billion.