Ron Sandler, the chairman of Northern Rock, urged taxpayers to look at the bigger picture yesterday as it became increasingly apparent that, when it is sold, the nationalised lender will fetch far less than the £1.4bn of government capital injected into it.
As Northern Rock revealed that its equity value has slumped to £1.12bn, Mr Sandler stressed that the capital injection was only part of a broader £27bn government rescue package and said he expected taxpayers would eventually get back at least as much as they put in.
Speaking as Northern Rock announced first-half pre-tax losses of £68.5m, Mr Sandler said: "If I'm a taxpayer and I'm asking the question 'was the support appropriately rewarded', it is the bigger question I would ask you to focus on – I am confident the taxpayer will be well rewarded."
The taxpayer lent Northern Rock £27bn during the banking crisis of 2008. Last year, the group was split into a "good bank" – the main business, known as Northern Rock – and a "bad" bank, which was named Northern Rock Asset Management (NRAM) and controls the worst mortgages. After the split, £1.4bn of the original loan was allocated to Northern Rock, where it was turned into equity, while the remaining £25.6bn was used to support NRAM.
Mr Sandler's comments came after Sir Richard Branson's Virgin Money and JC Flowers, the US private equity firm, separately tabled preliminary offers for Northern Rock last week that are understood to be pitched at between £900m and £1bn.
He wouldn't say when he expected to complete a sale of the group, or at what price. But Mr Sandler said he was "pleased with the level of interest we have received and will continue to explore the sale option over the coming months... at the right time and in the best interests of taxpayers".
Northern Rock, which was boosted in the first half by a 64 per cent reduction in costs to £106.8m, said it expected to begin trading profitably in the second half of 2012. The bank said conditions remained difficult and competition was strong in the mortgage and savings markets. However, it is confident it can continue to improve its bottom line, in large part by continuing to reduce its costs.
The bank announced 680 job cuts earlier this year, which began taking effect last month. Its costs were significantly reduced in the first half after Northern Rock was operationally separated from NRAM in November 2010. Before then, Northern Rock had borne the costs of running NRAM even though the two units were formally created at the end of 2009.
Last week, NRAM reported a £344.1m pre-tax profit as low interest rates kept mortgage repayments affordable for borrowers. Combined with the Northern Rock result, the two businesses reported a first half pre-tax profit of £275.6m, compared to £27.3m a year ago.