Northern Rock won't pay dividend on Treasury shares

LONDON (Reuters) - Northern Rock, the government- owned bank, said it will not pay a dividend on 400 million pounds of preference shares owned by the Treasury, reflecting its priority to repay a Bank of England loan.

The Treasury took ownership of the preference shares when the bank was nationalised in February.

The government wants Northern Rock to firstly repay 24 billion pounds to the Bank of England by 2010, as part of a business plan that will see it shrink its mortgage book and aim to break even by 2011.

"Payments of a dividend to HM Treasury at this time would have an impact on the company's profitability, which would be inconsistent with the government's stated objectives. As such we agreed to give Northern Rock a waiver from paying the dividend," a Treasury spokesman said on Friday.

(Reporting by Steve Slater and Sumeet Desai; Editing by Erica Billingham)