Northern Rock sale to come up £400m short

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.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Neil Pavier: Commercial Analyst

£50,000 - £55,000: Neil Pavier: Are you a professionally qualified commercial ...

Loren Hughes: Financial Accountant

£45,000 - £55,000: Loren Hughes: Are you looking for a new opportunity that wi...

Sheridan Maine: Finance Analyst

Circa £45,000-£50,000 + benefits: Sheridan Maine: Are you a newly qualified ac...

Sheridan Maine: Financial Accountant

£150 - £190 Daily Rate: Sheridan Maine: One of London's leading water supplier...

Day In a Page

No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor