Rock expects solid gains in second half of year

Nov 5 2009 by Karen Dent, The Journal

NORTHERN Rock says it is making “good progress” in restructuring its finances ahead of being split up as the mortgage market picks up.

The nationalised Newcastle-based bank, which says it has helped more than 1,000 struggling borrowers to stay in their homes this year, says the second half of the year will show a “significant improvement” on the first six months.

But it says it will still end 2009 in the red despite “encouraging trends” on net interest income, costs and loan loss impairment.

In its third quarter trading update, released yesterday, the Rock said it is committed to helping customers who are in difficulties and it treats repossession as a last resort. The number of unsold repossessed properties on its books fell to 2,193 from the peak of 4,201 a year earlier.

The rate at which mortgage arrears owed to the bank are growing is slowing but the proportion of its loans more than three months behind grew slightly from 3.92% at the end of June to 4.11% at the end of September.

Despite improving house prices, the Rock warned that the market was still subdued and it was “cautious” about the outlook in the medium term because the economy remains weak and unemployment is still rising.

The bank is due to be split into ‘good’ and ‘bad’ sections before the end of the year after receiving approval from the EU, with the better part being prepared for a sale back to the private sector.

The Rock, which was nationalised in February last year, still owes £14.5bn to the taxpayer. Its initial plan to repay this as quickly as possible was changed earlier this year in favour of boosting lending as part of concerted efforts to boost the mortgage market. However, the original policy means it will not hit is £5bn lending target for the year.

It made loans of £1bn in the three months to September and has lent £2.3bn so far this year. It plans to make £9bn available to borrowers in 2010.

Savings with the Rock are guaranteed by the Government, up to a ceiling for the bank of £20bn.

It now holds deposits of £19bn, up from £18.4bn at the end of June.

Rock chief executive Gary Hoffman said: “I am encouraged by the improving financial performance of the company. The results demonstrate that we are continuing to make good progress.

“The EC’s recent decision to approve State aid is an important milestone in the process of implementing the legal and capital restructure of the business. Our intention is to complete this by the end of the year.

“At Northern Rock we remain committed to working with all of our customers and to assist those who may be facing financial difficulty.

“We continue to invest a lot of effort in our approach to debt management and to providing the best possible support we can in all circumstances.”

The lender, which was nationalised after it was forced to seek £26 billion in emergency funding from the Bank of England in September 2007, employs more than 4,500 staff.