In its half year results Northern Rock announced that its loan repayment to the Bank of England is well ahead of business plan. Net borrowings have reduced by £9.4 billion to £17.5 billion from £26.9 billion at the end of December 2007, representing a 35 per cent reduction.
Northern Rock’s BoE loan is to be transferred to HM Treasury during second half of 2008
Loss before tax for the six months to 30 June 2008 stood at £585.4 million.
Total assets reduced to £99bn at 30 June 2008, compared with £109.3bn at 31 December 2007.
Loans and advances to customers have reduced by £14.5 billion in the first half of the year to £84.4 billion
Residential arrears over three months have more than doubled since the start of the year to 1.18 per cent (0.45 per cent at the end of 2007) compared with a CML average of 1.21 per cent at 31 March 2008.
HM Treasury is to swap up to £3 billion of the outstanding debt into equity.
Northern Rock said that 172,000 of its 662,000 customers are on the "Together" product, which has an average loan-to-value of 105 per cent.
Mortgage arrears have almost doubled in six months to 2.06 per cent of the mortgage book from 1.12 per cent. As a reflection of an anticipated rise in arrears Northern Rock has appointed a new director of debt management, Andy Tate who joins from Royal Bank of Scotland, and the debt handling division will more than double from 185 to 500 people.
Mortgage redemptions stood at £16.2bn and the total loan book has been reduced to £84bn although the plan is to get it down to £55bn by 2011.
Ron Sandler, executive chairman said: “Significant progress has been made on all of the key priorities of the business plan since it was approved in March.
“The external environment has deteriorated and the consequences of this for Northern Rock are increased credit losses. Following a review in July of the company’s ongoing regulatory capital requirements, HM Treasury has committed to a significant strengthening of the company’s capital base. This will not involve any cash transfer to Northern Rock and will be provided by HM Treasury through conversion into Ordinary shares of both its holding of £400 million of Preference shares as well as up to £3 billion of the outstanding debt following transfer of the Bank of England loan to HM Treasury. This capital restructuring will be finalised following a review of the Plan and will be implemented subsequent to State aid approval.”
Date: 5th, August, 2008
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