State-owned Northern Rock bank suffers large loss

9th March 2011, Comments 0 comments

British bank Northern Rock, nationalised three years ago to avert financial meltdown, suffered fresh losses in 2010 owing to costs linked to its massive state bailout, it said on Wednesday.

The lender was broken up into two parts at the start of last year, forming a so-called "good bank" for its healthy businesses and a "bad bank" management company to wind down the bad assets.

The "good bank" -- Northern Rock Plc -- posted its first set of annual results on Wednesday and revealed a pre-tax loss of £232.4 million (271 million euros, $377 million).

However, underlying losses narrowed to £92.4 million in the second half of 2010 from £140 million in the first half.

The company said it was working alongside the government to facilitate its return to the private sector -- but did not specify when this would happen.

"Financial performance was in line with expectations in 2010," Northern Rock executive chairman Ron Sandler said in the results statement.

"While it is always disappointing to report a loss, this in part reflects the high level of liquidity held, the costs incurred in relation to the government's retail and wholesale guarantees, which have now been removed, and other exceptional costs incurred as the company was restructured.

"We continue to work closely with UKFI on the strategic options for returning the company to private ownership, in the best interests of taxpayers, and we will provide a further update in this regard in due course."

UK Financial Investments Ltd (UKFI) was created in late 2008 to manage the British government's holdings in the financial sector.

Despite the annual loss, Northern Rock said that it would pay out £13.1 million in 2010 bonuses to staff. Sandler is not eligible for a bonus.

Northern Rock collapsed in mid-September 2007 when its exposure to the credit crunch forced it to seek emergency assistance from the Bank of England, sparking the first run on a British bank in recent history.

To prevent a wider system meltdown, the government agreed in December 2007 to guarantee all customer deposits held at the struggling group, before taking the lender over in early 2008.

The taxpayer also owns 83 percent of the Royal Bank of Scotland and 41 percent of Lloyds Banking Group after both institutions were partly nationalised at the height of the global financial crisis in 2008.

© 2011 AFP

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