Northern Rock's "good bank" posted a £140m loss for its first six months as an independent company while the "bad bank" it was spun off from reported a £350m pre-tax profit.
The loss at Northern Rock plc was largely down to separation costs, and the need to pay high interest rates to depositors while holding £7bn at the Bank of England at low interest rates. The bank also incurred heavy charges as a result of the state guarantee offered to depositors. It was removed during the half and the bank lost £2bn of its £19bn in deposits as a result.
Gary Hoffman, who runs both banks as chief executive, insisted that the "good bank" still remained on track for a return to the private sector but said there was "no timetable" for this. "We have come away and made lots of very good progress. We remain committed to repayment of the taxpayer and returning Northern Rock to the private sector when the time is right. The numbers show we have made considerable progress against these objectives," Mr Hoffman said.
He said the bank is now looking at expanding its product range beyond mortgages and savings to include personal loans and credit cards.
Mr Hoffman objects to calling Northern Rock Asset Management a "bad bank", saying that 90 per cent of the mortgages that remain with it are still "performing" loans. Its profit compares to a £742m loss in the first half of 2009. Despite the improvement in the operation's fortunes, largely because bad debts are declining across the banking industry, the company is only repaying the £22.5bn loan advanced by the Government at a snail's pace – £300m was paid back in the first half.
The number of properties in possession also fell to 1,846 compared with 2,061 at 31 December 2009 and the impairment charge against bad loans, at £277m, is lower than in both the pervious half and the first half of last year. It is hoped that a run off company may eventually buy the business.