KEY POINTS
Legal and Capital Restructure
- Plans for legal and capital restructure are progressing well, with completion expected before the end of 2009, subject to European Commission (EC) and Financial Services Authority (FSA) approval
- The intention is to split Northern Rock into two separate entities, BankCo and AssetCo
- Northern Rock continues to support the Government in its revised application for State aid
Earnings
- Underlying loss reduced to £269.6 million for the six months to 30 June 2009, compared with an underlying loss of £443.3 million in the first half of 2008, despite incurring a loan loss impairment charge of £602.2 million
- The main drivers of the reduced underlying loss are improved underlying net interest income and a significant reduction in total costs incurred
- Statutory loss before tax for six months to 30 June 2009 of £724.2 million - including a hedge accounting volatility charge of £298.2 million and £156.4 million being the rebate for charges of Government funding and guarantee costs expected to be received upon approval of State aid from the EC
Lending
- Gross residential lending of £1.3 billion in the first half of 2009, with a pipeline of residential lending of £1.2 billion at 30 June 2009
- Selective mortgage retention programme successfully launched in June 2009 Northern Rock’s new lending in 2009 is likely to be nearer to £4 billion than the previously envisaged £5 billion, reflecting its constrained capital position prior to completion of the legal and capital restructure
- Once the restructure and capital injection has completed (which is subject to EC approval), Northern Rock will start to increase its new lending All lending will be made responsibly and will be carefully underwritten on commercial terms
Retail funding
- Retail deposits of £18.4 billion at 30 June 2009, compared with £19.6 billion at 31 December 2008 and £14.2 billion at 30 June 2008
- The net outflow reflects increased market competition, along with a more normalised customer view of the savings market and Northern Rock’s place within the market
- Northern Rock continues to compete in the retail savings market within the constraints of its self-imposed competitive framework
Government Loan
- Net borrowings provided by the Government are £10.9 billion, compared with £8.9 billion at the end of December 2008, in line with revised plan and reflecting the cessation of the active redemption programme
- This represents gross amounts outstanding of £14.5 billion, less balances held for liquidity purposes at the Bank of England of £3.6 billion
- The Government loan will increase upon completion of the legal and capital restructure
Credit Quality
- Residential mortgage accounts over three months in arrears, including Together loans, have risen to 3.92%, compared with 3.67% at 31 March 2009 and 2.92% at 31 December 2008
- Excluding Together, residential mortgage accounts over three months in arrears are 2.85% at 30 June 2009
- Northern Rock has seen improvements in early stage arrears (accounts under 3 months in arrears) in recent months
Assisting customers in difficulty
- Northern Rock remains committed to assisting customers in difficulty wherever possible, via innovative mortgage rescue solutions and involvement in Government schemes
- Stock of properties in possession has fallen to 2,522, compared with 3,620 at 31 December 2008
- This reduction reflects the actions taken to assist customers in difficulty to stay in their homes and increased sales, at best price, of repossessed properties in the best interests of both customers and the Company
Capital
- As announced on 1 July 2009, the Company’s capital base has reduced to a level below its minimum regulatory capital requirement
- Until the legal and capital restructure is implemented the FSA has confirmed that it does not currently intend to restrict the activities of the Company
Northern Rock Foundation
- Donation to The Northern Rock Foundation of £7.5 million in the first half of 2009, with total payments made since 1997 of £213 million
Gary Hoffman, Chief Executive of Northern Rock commented:
"The current environment continues to be challenging, however, against this backdrop Northern Rock is making progress against its revised plan and has delivered results in line with expectations. We anticipate receiving State aid approval in the autumn and the legal and capital restructuring of the Company to be completed by the end of the year. This ultimately prepares for a return to the private sector."
