Northern Rock makes profit

Northern Rock

Northern Rock, the bank that was nationalised in February 2008 after becoming the first bank in 150 years to suffer a bank run, has reported that it has made a profit.

According to Northern Rock Asset Management (NRAM), the business branch that holds most of the rescued bank's old mortgages and unsecured loans, pre-tax profit has totaled £349.7 million for the first six months of the year. This is a massive increase of last year's loss of £724.2 million during the same period.

Despite this those, Northern Rock PLC still saw a pre-tax loss of £142.6 million. These are the first results since the bank was split into two - "the bad bank", NRAM that holds unsecured loans and rescued mortgages and "the good bank", Northern Rock PLC, the "good bank" that holds savers' deposits and new loans.

Loans and growth

While the bank said its growth showed ‘good progress', it can't escape from the fact that its swing into the black is due to the big reduction in the money set aside to cover loans that may not be repaid.

This is because, as economic conditions improve, the bank expects more loans to be repaid. Cheaper costs of borrowing from wholesale markets also contributed to the profit.

NRAM has made a repayment of £300 million to the government during the six month period, but it still owes £22.5 billion to the Treasury.

In a statement, chief executive Gary Hoffman said the result was "in line with expectations", and that it was "continuing to prepare the business for a return to the private sector when conditions are right to do so".

"The company is well positioned to capitalise on future growth opportunities and is now able to compete on the same terms as other banks and building societies," Mr Hoffman noted.

The business lent almost £2 billion to home buyers during the period, but lost almost the same amount in retail deposits, which fell to £17.6 billion from £19.5billion at the start of the year. Until 24 May, the government guaranteed all deposits at Northern Rock. However, now only the first £50,000 of each customer's savings is guaranteed, in line with other UK banks.

When Northern Rock collapsed in the autumn of 2007, it signalled the start of the banking crisis.

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