£15m bonuses 'justified' after Rock slashes losses by £1bn

Union supports payments to staff as state-owned bank trims annual losses to £257m
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The Independent Online

Northern Rock, the state-owned bank, said yesterday it would pay its staff £14.9m in bonuses after reducing its annual losses by more than £1bn.

But the company said that only 32 employees would be given more than £25,000 – the level at which the Government's one-off bonus super-tax of 50 per cent comes into play. The Rock's super-tax bill will therefore come in at £1.5m, a fraction of the charges facing its rival lenders.

The chief executive, Gary Hoffman, said: "We have beaten the [loss reduction] target the Government and our board set us by over £500m. It is therefore absolutely right that the vast majority of the money goes back to the taxpayer. But it is also right that £14.9m is a very small percentage and should go to reward those people who have delivered that improvement."

Mr Hoffman, in common with other bank bosses, has waived his bonus, although a new remuneration plan is being put in place to reward him when the company returns to profit or Northern Rock Plc – the "good" part of the bank – is successfully sold.

Unusually, the banking union Unite backed the bonuses. Its national officer, Rob MacGregor, called the rewards "appropriate recognition for the turnaround in the fortunes of the bank". "The improved financial results are the direct result of the hard work and dedication of workforce, in particular the thousands of staff in the North-East," he added.

The Rock lost £257.4m last year, down from £1.36bn in 2008, although accounting quirks meant that, at the statutory level, it was able to record a pre-tax profit of £467m.

Mr Hoffman said the nationalised bank had benefited from better than expected economic conditions and "had more stability" than a year ago but admitted: "The outlook is still very uncertain." He added: "It is still tough for lots of people but we haven't had the type of environment we feared. We have invested heavily in helping customers in difficulty."

Some of its mortgage customers are, however, paying more than they were after moving from fixed-rate deals to the bank's standard variable interest rate of 4.79 per cent, falling to 4.54 per cent for longstanding customers. This enabled the bank to improve margins.

The number of homes in possession fell to 2,061 from 3,620 at the end of December 2008, while arrears in the final quarter of 2009 stabilised at 4.28 per cent.

Excluding the Rock's 125 per cent "Together" mortgages, 3.1 per cent of accounts were more than three months in arrears on 31 December. The number of customers in arrears actually fell in the final quarter and Mr Hoffman said bad loans had probably peaked in 2009.

The Rock's impairment charge fell from £602m in the first half to £442m in the second, although the £1.04bn total for the year was higher than the 2008 figure of £894m. Yesterday's results were the last to be presented by the bank as a single institution. Northern Rock Asset Management, dubbed the "bad bank", is expected to stay in state hands but Mr Hoffman said the improvements meant that even a sale of that business was possible.

However, any deal would be complicated by Northern Rock's need to repay its £22.8bn Government loan.

Mr Hoffman said he was under "no pressure" from ministers to achieve a quick sale but informal talks with suitors had been held. "I would expect interest," he added. "We are probably the best capitalised, most liquid bank in the world at present."

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