‘Rock’s ‘bad bank’ earns

August 23, 2010 at 4:15 pm

Northern Rock, the UK bank that famously imploded in 2007, only to be rescued by the government six months later, has posted its figures for the past half-year, revealing a surprising twist in the bank’s fortunes.

Following the nationalisation of Northern Rock in February 2008, the bank was split into two distinct parts – a ‘good’ bank, which contains new savings, and generally operates as a traditional high street bank, and a ‘bad’ bank, which holds all the toxic assets that forced Northern Rock to its collective knees during the credit crunch.

Ironically, Northern Rock’s good bank is performing badly in comparison to its evil twin, posting a £140m pre-tax loss, to the bad bank’s £349m profit. The bad bank, also known as Northern Rock Asset Management, reported a devastating £724m loss last year, which goes some way to demonstrating how quickly the bank – or at least, elements of it – has recovered.

Northern Rock’s efforts to revive its business are being thwarted by its own customers, who continue to withdraw savings from the bank at an alarming rate. Officials predict that £2bn in savings have been liberated from Northern Rock’s vaults in the last six months alone, down from £19.5bn in January 2010, to £17.6bn in August.

Yet Northern Rock chief, Gary Hoffman, claims that the good bank’s flagging fortunes are ‘in line with expectations’. Hoffman noted that the slump in savings was due in part to the government’s withdrawal of a deposit guarantee, which would have protected customers if Northern Rock had collapsed.

Despite the bad bank’s apparent success over its sibling, the branch still owes £22.5bn in loans to the taxpayer. The good bank, on the other hand, is supported by conventional retail avenues, such as loans and mortgages.

Gary Hoffman remains optimistic for the future – “Northern Rock is now able to compete on the same terms as other banks and building societies. The company continues to operate from a position of capital strength and remains committed to returning to private ownership when the time is right."

The recession continues to bite into the bank, however. Northern Rock saw the number of mortgages in arrears jump 273 to 22,837 over the first six months of 2010.

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‘Banking EU stress test’

August 13, 2010 at 2:30 pm

Results from the European banking stress tests conducted by The Committee of European Banking Supervisors (CEBS) have revealed that seven out of 91 banks failed.

The banks that failed included five Spanish banks – Diada, Espiga, Banca Civica, Unnim and Cajasur plus Germany’s Hypo Real Estate and Greece’s ATEbank. But of the four UK banks that were tested, Barclays, HSBC, Lloyd’s TSB and The Royal Bank of Scotland, all passed.

According to the CEBS, the objective of the 2010 exercise was to provide policy information in order to access "the resilience of the EU banking system” in case of “adverse economic developments” and to look at its ability to absorb “shocks on credit and market risk”.

Testing was extended from 26 organisations in 2009, to 91 EU banking institutions in 2010. This was organised in descending order of size, covering “at least 50% of the national banking sector,” the CEBS explained.

The seven banks that failed the health checks would need to raise capital by 3.5bn Euros, in order to meet the required standards. These banks have been requested to put forward a plan to “address the weaknesses” that have been highlighted from the stress testing within an agreed period of time with their supervisors, said the CEBS.

Commenting on the tests, the European Central Bank (ECB), said that the stress testing was "comprehensive and rigorous". It welcomed the disclosures that were made by individual banks. This allowed the 91 banks that were tested the "public assessment of their capital position".

Results of the stress testing were based on “what if” situations, including believable but acute scenarios that were unlikely to occur. However, periodic and EU wide stress tests will continue to be undertaken by the CEBS across the banking sector, in order to improve practices throughout Europe, it said.

The CEBS, EU national supervisory authorities and the ECB worked in conjunction with each other to prepare and publish the results of the tests.

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‘Bank margins currently at record levels’

August 5, 2010 at 1:32 pm

The same week that the new Business Secretary, Vince Cable, announced his intention to take on banks in order to create “a more competitive system where the customers are not ripped off”, research has emerged from which shows that bank margins are at record levels.

Recent figures revealed by show that the average rate of interest charged on personal loans is now 12.6%, 12.1% over the Bank of England’s base rate, with credit cards charging an average interest rate of 18.3% above base rate

Despite lenders being forced to try anything they can to cut rates on fixed rate mortgages in an attempt to encourage borrowers to move away from record low variable deals, banks have increased rates on unsecured lending, with lenders taking record margins.

Michelle Slade, spokesperson for, has suggested that “customers successfully applying for unsecured credit are paying a heavy price as the increased risk is passed on through increased margins”. Slade continued to state that “until banks and building societies repair their balance sheets, it’s highly likely these increased margins are here to stay”.

As banks continue to pay out bonuses to staff, it appears that customers are once again bearing the brunt of costs. The research by suggests that unless the current government is able to force banks to change their practices, something that Mr Cable has identified as a key test for the coalition, customers will continue to ‘ripped off’ by banks using them to pay for their mistakes.

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