Northern Rock : Half year loss of £724.2m

As reported by the BBC

Northern Rock has reported a loss of £724.2m for the first six months of 2009, compared with a loss of £585.4m in the first half of last year.

The nationalised bank said that 3.92% of its mortgage loans were more than three months in arrears, well above the national average of 2.39%.

It currently owes the government £10.9bn, but is waiting for European regulatory clearance for more funding.

Northern Rock was nationalised in February 2008.

It had to be bailed out by taxpayers in 2007, when its model of borrowing short-term funds from wholesale markets to lend to mortgage borrowers was hit by the credit crunch.

BBC business editor Robert Peston said that there were tentative signs that Northern Rock may be over the worst.

But he added that its mortgages are continuing to go bad at an alarming rate and a faster rate than most of its rivals.

The bank said the total value of all of its loans had fallen by £602.2m in the first six months of the year.

Additional funding

Northern Rock is in the process of splitting itself into two companies, one of which will hold savers' money and be responsible for new lending, while the other will hold many of the existing loans and be responsible for paying back loans to the government.

Have Your Say
J Shaw, Bradford

Once the restructuring has been completed, the Treasury will provide additional funding if the European Commission agrees to allow the plan.

Chief executive Gary Hoffman told reporters he was making "good progress" in discussions with the Commission and expected to receive clearance in the autumn.

Earlier in the year, Northern Rock announced a change to its strategy, which has meant that it has reduced the priority of repaying its loans to the government and instead has tried to increase the amount of money it is lending.

But it has warned it is unlikely to meet its target of £5bn of new lending for this year and is more likely to hit a figure of £4bn.

Mortgage demand

Mr Hoffman said that the target would be missed, because it was constrained by not yet having received state aid clearance from Europe.

But he added that there would have been demand for the extra money if it had been available and said applications for Northern Rock mortgages had doubled in the second quarter of the year, compared with the first three months of the year.

In addition to reporting statutory losses, Northern Rock also released an underlying figure, which it said gave a better reflection of the state of the business.

The underlying loss fell to £269.6m for the six months to 30 June, compared with £443.3m for the same period of 2008.

The underlying figure excludes a £156.4m rebate that it will receive if it gets state aid clearance from the European Commission.

It also excludes what it calls a volatility charge of £298.2m on the way it accounts for the value of certain assets.