Northern Rock admits sale price may not reach £1.4bn target

The City had been using £1.4bn a starting point for any bidders for Northern Rock, but this has now fallen to £1.1bn Ron Sandler, chairman of Northern Rock, insisted taxpayers would eventually be “well rewarded” for bailing out the Newscastle lender even if the current sales process fails to achieve a £1.4bn price tag for the nationalised lender. The taxpayer lent Northern Rock £27bn in the “dark days” of the 2008 banking crisis, when Sandler was parachuted in by the government as it was nationalised . It has since been split into two: Northern Rock plc which is now up for sale; and Northern Rock Asset Management (NRAM) , the “bad” bank that holds the bulk of the taxpayer loan. Some £1.4bn of the total £27bn loan was used to support Northern Rock plc, and turned into equity after the split last year, and its first half figures published on Wednesday show that this has now fallen in value to £1.1bn. The City had been using £1.4bn a starting point for any bidders but Sandler stressed that the price fetched from the sale could not be looked at in isolation in assessing returns to the taxpayer and that the repayment of the rest of loan by NRAM needed to be considered. “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,” Sandler said. “I am confident the taxpayer will be well rewarded,” he added. The deadline for bids was last week and Sandler refused to identify the potential buyers and stressed that there was no timetable in place to complete a deal. “I am pleased with the level of interest that has been received,” Sandler said. He also said that while a sale was being pursued, other options – a flotation or remutualisation – had not been ruled out. For the first time, he has set a target for a return to profitability in the second half of 2012 – some four years after it was nationalised – as the lender reported a loss of £78.8m in the first six months of 2011. This was in line with expectations and “significantly reduced” on the loss of £140m in the first half of 2010. The bank was allowed to resume lending last year but its mortgage book has grown only slowly from £12.2bn at the end of 2010 to £12.5bn at the end of June. Gross mortgage lending in the first half of 2011 was £1.5bn, including mortgage retention business of £0.3bn. “The lending profile has been managed for value rather than volume, which resulted in a reduction in completions in the first half compared with the same period in 2010,” Northern Rock said. The number of arrears cases has continued to gradually increase over the first half of the year but remains below the industry average. In March, Northern Rock announced 680 job cuts . Half of those affected have left, with the rest expected to go in the remaining part of the year. More jobs could be lost, Sandler admitted. UK Asset Resolution – the “bad” part of Northern Rock that has been merged with the Bradford & Bingley mortgage book that was nationalised in September 2008 – has already returned to profit. Last week it reported an increase in profits to £344m in the first six months of 2011 . The Unite union said Northern Rock had shed thousands of workers since it was brought to the brink of collapse by the financial crisis. “The reality behind these results is that over the last four years the staff who in no way brought the bank to near collapse, have paid with changes to their pensions and the loss of over 3,000 colleagues. Yet the greedy management under Adam Applegarth [the former chief executive] have sailed away in their multi-million pound yachts,” said Brian Cole, Unite officer. “It should be recognised that while Northern Rock made a loss, NRAM which split from the bank, has paid £2.1bn in the last 18 months, and has made a pre-tax profit of £344m for the first half of this year. Unite continues to question the rationale behind the split of the Northern Rock business,” he added. Northern Rock Banking Jill Treanor guardian.co.uk

Posted by on August 3, 2011. Filed under News, Politics, World News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.