NORTHERN Rock, nationalised recently after the first run on a major British bank in 140 years, yesterday revealed it had crashed almost £168 million into the red in 2007.
The bank said it expected to remain "significantly loss-making" in 2008 because of restructuring costs and "a deteriorating credit environment". However, it said it hoped to break even in 2011.
Northern, where financial troubleshooter Ron Sandl
er has been installed by Chancellor Alistair Darling as the new boss, also pledged to limit its share of UK retail deposits and new mortgage business so it did not gain an unfair market advantage as a result of its government backing.
Northern's loss in its final year as a public company compared with a profit of £626.7m in 2006. It blamed the negative turnaround of nearly £800m on costs related to its funding crisis and higher losses on risky assets and home loans.
The bank collapsed into public ownership after failed rescue bids late last year by Virgin Money and Olivant, after the credit crunch in financial markets from last summer choked off its money supply.
Britain's fifth-biggest mortgage lender disclosed yesterday that its Bank of England loan had dipped to £24bn from £27bn and should be repaid by the end of 2010.
The run on Newcastle-based Northern was sparked after the BoE announced a financial lifeline for the bank last September, and the bank said yesterday that £12.2bn of retail savings were withdrawn last year. That compared with an inflow of £2.5bn in 2006.
Net lending was £12.2bn, down from £16.6bn in 2006, after a sharp slowdown in the second half.
Looking forward, Northern said it would limit its share of retail deposits to 1.5 per cent in the UK and to 0.8 per cent in Ireland, and would not rank in the top three of "best buy" tables for major savings products this year.
It also said it aimed to redeem about 60 per cent of mortgages when they come up for renewal, and would discontinue unsecured and commercial lending. The bank will now limit its share of gross mortgage lending to 2.5 per cent, it said, compared with its estimated 8 per cent share of the overall mortgage market.
Rivals had been concerned that state-ownership would give the bank a competitive advantage.
Net lending had raced to £10.7bn by mid-2007, giving it a 19 per cent share of the UK market, as it aggressively pursued business until its business model collapsed when it was unable to raise funds in financial markets.
It took 75 per cent of its funding from financial markets rather than from retail deposits, compared with most competitors taking well under 50 per cent of funding from the money markets.
Sandler earlier this month unveiled plans to cut 2,000 jobs and halve its lending book to about £50bn by the end of 2011 from £107bn now.
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The full article contains 506 words and appears in The Scotsman newspaper.
