'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.
