Northern Rock 'on road to recovery'

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The Independent Online

Northern Rock insisted today that it was on the road to recovery despite posting an annual loss as it prepares itself for private ownership.

Ron Sandler, Northern's Government-appointed chairman, said the £232.4 million pre-tax loss for 2010 was "disappointing" but insisted progress was being made as the shortfall narrowed in the latter half of the year.

While Mr Sandler was not eligible for a bonus, the bank's 4,500 staff, who on average earn £20,000 a year, will share a pool of £13.1 million.

The results were met with scorn from union leaders, as Unite national officer David Fleming said the progress had "come at a heavy price" and added: "With over 2,500 staff having paid with their jobs for the scandalous behaviour of the previous management, this gradual recovery is not enough."

Northern Rock was nationalised in February 2008 after it collapsed amid the credit crisis, sparking the first run on a UK bank for 150 years.

The Government split Northern Rock in two at the start of last year, forming a mortgage and savings bank called Northern Rock plc and Northern Rock Asset Management (NRAM) to house the more toxic loans.

Today's losses were attributable to the "good bank" Northern Rock Plc, with "bad bank" NRAM, which was merged with Bradford & Bingley to form UK Asset Resolution, due to publish its results later this month.

Executive chairman Mr Sandler said the annual loss was "disappointing" but the bank was making progress.

He said: "It remains a difficult trading environment for a small bank dependent on retail funding, with a combination of low interest rates, subdued mortgage market demand and high competition for retail savings.

"However, the underlying loss incurred in the second half of the year was lower than in the first half, demonstrating that progress is being made, and I am confident that the company is on the right trajectory to profitability."

Earlier this year, the Government launched a tender for advisers to look at options for Northern Rock plc, including a possible sale.

The bank did not offer a detailed update on returning the business to private ownership. Mr Sandler said: "We continue to work closely with UK Financial Investments on the strategic options for returning the company to private ownership, in the best interests of taxpayers, and we will provide a further update in this regard in due course."

The company said its bonus pool reflected achievement against objectives for 2010, such as the completion of the restructure and the release of Government guarantees ahead of plan.

Mr Sandler said only one executive director received a bonus - Jim McConville, chief financial officer, who was awarded £185,000 for 2010.

Mr Sandler would not give any indication as to when the bank hopes to return to profit.

He said: "We're not making profit forecasts. We're on the right trajectory to return to profitability."

However, Mr Sandler said the bank would not be exploring options to return to private ownership if it did not expect to return to profit.

Gross residential lending at the bank was £4.2 billion in 2010, while net residential lending stood at £1.9 billion. The Government's 100% guarantee for Northern Rock deposits was also removed last year.