LONDON (Reuters) - The new Northern Rock Plc retail bank, born from the ashes of the original lender which was Britain’s first major credit crisis casualty, posted a maiden loss on Tuesday and saw deposits plunge by a tenth.
State-owned Northern Rock Plc, which manages new mortgages and savings, posted a loss of 140 million pounds ($216.5 million) for the six months ending June, due partly to costs for its spin-off from the original company.
The new Northern Rock Plc entity also saw retail deposits drop as savers pulled out nearly 2 billion pounds from the bank, partly as a result of the government’s stopping its 100 percent guarantee of Northern Rock deposits.
Its retail deposit balances stood at 17.6 billion pounds at the end of June, down from 19.5 billion on January 1.
“I don’t think people question the viability of the bank any more, the drop in deposits just reflects the competition in the UK retail banking sector,” said Seymour Pierce analyst Bruce Packard.
Northern Rock had to be nationalised in February 2008 after running aground during the credit crisis, when its business model of borrowing short-term funds from wholesale markets to lend to mortgage borrowers lay in tatters.
The company split this year into two different divisions grouping its “good” assets and “bad” assets.
Northern Rock Asset Management (NRAM) represents the “bad” bank comprising existing mortgages and unsecured loans, while Northern Rock Plc represents the “good” bank which comprises new mortgages and savings.
The British government, keen to raise cash to cut the country’s deficit, eventually hopes to return the new Northern Rock Plc business to the private sector.
Gary Hoffman, who is chief executive of both Northern Rock Asset Management and Northern Rock Plc, said there was still no set schedule for Northern Rock Plc’s privatisation.
“There is no deadline, no timetable, no process,” he told reporters on a conference call.
“We remain committed to returning to private ownership when the time is right.”
Boosted by lower bad debt charges, Northern Rock Asset Management swung to a pretax profit of 349.7 million pounds from a loss of 724.2 million a year earlier.
Northern Rock Asset Management’s positive earnings numbers follow the trend set by larger rivals such as HSBC and BNP Paribas, which also had higher profits due to fewer bad debt costs.
State-owned UK mortgage lender Bradford & Bingley also said last week it had swung to a first-half profit thanks to lower costs and mortgage arrears.
UK Financial Investments, the agency which manages the government’s stakes in fully and partially nationalised banks, plans to merge Northern Rock Asset Management with Bradford & Bingley.
Hoffman declined to say by when he expected the new Northern Rock Plc business to become profitable, but added that the re-born company was “on the right trajectory.”
“We’ve got a good platform for growth. We’ve got a brand that’s resilient.”
Editing by Paul Hoskins, Mike Nesbit and Michael Shields