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Northern Rock will repay government by 2011

31/03/2008

Northern Rock revealed 2007 losses of £167.6 million and said it aims to pay back the government by 2011.

The bank also revealed a £760,000 termination payment for former chief executive Adam Applegarth, who stepped down in December 2007 following the crisis that led to Northern Rock's nationalisation.

The troubled bank has published its 2007 accounts, which show a loss before tax of £167.6 million for the year.

The Newcastle-based lender said in 2008 the business is expected to be significantly loss-making and does not expect to reach breakeven until 2011.

The Bank of England loan facilities to Northern Rock as at 31 December 2007 stood at £26.9 billion, according to the bank, and have since fallen to around £24 billion. Northern Rock expects to pay the loans back by 2010.

Full-year net outflow of retail funds of £12.2 billion reflect the cost of the first run on a UK bank in over a hundred years when savers rushed to withdraw their money following the Bank of England bail-out last autumn.

The bank plans to recover by contracting to a smaller and more sustainable business, reducing the balance sheet from around £107 billion in 2007 to approximately £50 billion by the end of 2011.

Northern Rock also wants to accelerate mortgage redemptions, with a target redemption level of about 60 per cent after end of customer product period, discontinue unsecured lending and slash staff levels by a third.

In addition, retail deposits will represent approximately 50 per cent of total funding by 2012.

Ron Sandler, executive chairman, said: "Without distorting competition, we are determined to create a viable business to be returned to the private sector."

In order to avoid unfair competition, Northern Rock said it will limit its share of retail deposit balances to 1.5 per cent in the UK and 0.8 per cent in Ireland, and it will not rank in the top three in any of the major retail savings products categories during 2008.