Northern Rock to pay bonuses

LONDON (Reuters) - Northern Rock shrank its losses in 2009, helped by lower bad debts in the second half, and said it would return to bonus payments for all staff, with employees sharing just over 13 million pounds.

Northern Rock executives said the bank, which was nationalised two years ago, had turned a corner, with arrears stabilising in the fourth quarter, but warned loan impairments would stay high in 2010, despite coming off the peak in 2009.

The bank, Britain's first major victim of the credit crunch, was one of the country's most aggressive lenders at its peak, with products including the infamous Together mortgage, which gave borrowers more than their home was worth and is still driving arrears and the bulk of repossessions.

"We still think the recovery is going to be uncertain and will take some time," Chief Executive Gary Hoffman said.

Northern Rock, in which the government has invested billions in taxpayers' pounds, has not been immune to the public's outrage over bank bosses' pay. Hoffman said on Wednesday he would follow other UK bank executives and waive his 700,000 pound bonus.

He will pay bonuses to other employees after the bank hit its lending and other targets.

In total, bonuses will cost the bank 14.9 million pounds, including a 1.5 million pound bonus tax payment -- a fraction of payments at rivals with investment banking arms.

Employees at the former building society, who are paid an average salary of 20,000 to 25,000 pounds a year, will receive an average bonus of 3,000 pounds. Thirty-two staff will receive bonuses of more than 25,000 pounds.

In 2008, Northern Rock did not pay senior management bonuses and gave what it said were "modest" bonuses to other staff. It gave no numbers.

IMPAIRMENTS PEAK

The bank, being prepared for a return to private ownership, said its underlying pretax loss for 2009 shrank to 383 million pounds from 1.29 billion the previous year, thanks to cost cuts and improved net interest income, as more mortgage customers stayed after their fixed-rate deals expired.

But its loan impairment charge rose to 1.04 billion pounds from 894 million a year earlier and the proportion of mortgages three months or more in arrears rose from 2.92 percent at the end of June to 4.28 percent at the end of September, a level that remained stable at the end of 2009.

That compares with a UK sector average of 2.38 percent and is largely down to Together mortgages. Excluding that product, which accounts for 30 percent of the total book and half of impaired home loans, arrears climbed to 3.1 percent.

Hoffman said impairments had peaked in 2009, but warned they would remain high in 2010 compared to historic levels.

Earlier this year, the bank was officially split into a "good" bank, new mortgage and savings unit Northern Rock, which the government hopes to sell, and a "bad" bank, Northern Rock Asset Management, which includes existing mortgages and unsecured loans, and could remain in government hands.

Wednesday's results, for the whole of the old bank, were published under Northern Rock Asset Management.

Asked about interest from potential buyers for either side of the bank, CEO Hoffman reiterated he had held only informal talks.

"There is no timetable. I have been set no deadlines by the government. There is no rush," he told reporters. "We have created something that will be attractive to private investors but there is no formal process."

Hoffman said there was space in the "over-consolidated" UK market for a rehabilitated Northern Rock.

The British Treasury lifted its guarantee on most retail deposits with nationalised Northern Rock late last month, marking a milestone in the bank's turnaround.

The 100 percent guarantee, introduced in September 2007 to stop a run on the bank, had been under review since the start of the year. Its removal is key for suitors eying Northern Rock, as buyers will be keen to see that deposits stay in the bank.

Hoffman said he had not seen "abnormal levels of activity" since the decision to lift the guarantee.

(Editing by Will Waterman, David Holmes and Karen Foster)