'Northern Rock sheds recession moss'
April 1, 2010 at 2:35 pm
Northern Rock, a bank that came to typify the collapse of the financial sector in 2008, has cut its losses by more than 81%. The firm lost £257m last year, compared to £1.36bn two years ago. Bosses will now share a £13m bonus fund, as recompense for pulling the bank out of insolvency.
In September 2007, Northern Rock became the first bank in a century to experience mass withdrawals, otherwise known as a ‘bank run’. Five months later, after the public emptied Northern Rock’s vaults, the firm was scooped up by the government, who split it into two distinct entities – a ‘good bank’ full of money, and a ‘bad bank’ full of unpaid mortgages and ruined assets.
The good bank, which is called Northern Rock Plc, will be sold to the highest bidder later this year. The sale will allow the bank to return to private ownership, and help repair the £23bn hole in Gordon Brown’s money box. Northern Rock Asset Management PLC, the bad bank, will begin life anew as a mortgage provider, whilst continuing to recoup losses on existing loans.
Northern Rock has already increased lending, but the bank has seen no change in the number of people saving with the branch, suggesting that consumer trust is still very low. However, customers who are still struggling to pay back their Northern Rock loans have been offered a more ‘friendly’ approach to repossession.
The bank has laid siege to 1,600 fewer properties than in 2008, after the number of customers in arrears jumped to 23,000 people, approximately double the figures from two years ago. The firm endeavours to pay back half of its own loan within the next four years. The other £11.5bn could take an extra 16 years to materialise.
In related news, from the 24th May the government will cease to guarantee all deposits in Northern Rock accounts, meaning that money lost in any future crises will not be making a speedy return to the balance sheet.
