Huge payoff for Rock chief, despite bank's £167m loss

The former boss of Northern Rock will be entitled to a £760,000 payoff despite the bank being rescued by the Government, it was confirmed today.

Adam Applegarth, who stepped down as chief executive of the mortgage lender in December, could receive £63,333 a month for up to a year under the severance deal, the nationalised lender's 2007 annual report said.

The document also revealed that Northern made a loss of £167.6 million during the year as it tried to fight off nationalisation, compared to a £626.7 million profit the year before.

Northern Rock, which is now under the chairmanship of City troubleshooter Ron Sandler, also said it pledged to repay £24bn in Government loans by the end of 2010.

The annual report discloses that Mr Applegarth was entitled to a "termination payment" of £760,000 when he left on 12 December last year.

This is payable monthly until 16 November this year, but will be reduced if the former boss gets another job paying more than £20,000 in salary before that time.

The annual report said Mr Applegarth's settlement terms were "substantially less" than the amount he was otherwise due when he left last year.

Northern Rock also agreed to contribute £5,000 plus VAT towards Mr Applegarth's legal fees, it was disclosed.

And £75,000 of his mortgage will continue to be charged at the concessionary staff interest rate until November.

Northern Rock said there had been a £12.2bn outflow of retail deposits in the year, compared with inflows of £2.5bn in 2006. This followed the run on the bank as customers queued to withdraw savings in the aftermath of Northern asking the Bank of England for emergency assistance.

Northern Rock blamed its 2007 loss on exceptional costs related to the company's strategic review after the money markets froze last summer and ruined its business model, as well as writedowns on investments linked to the credit crunch.

But the bank said it made an underlying pre-tax profit of £421.9m after stripping out the effects of the non-recurring costs. This compares to £587.2m a year earlier.

The lender said it incurred £127.2m of one-off expenses during the second half of 2007, including £51m in administrative fees as bosses tried to fight off collapse through a strategic review.

Northern Rock was nationalised last month after the Government rejected takeover bids from Sir Richard Branson's Virgin group and an in-house management team.

The bank warned today that it would be "significantly" loss-making this year due to further restructuring costs, higher funding bills and the deteriorating credit environment.