Northern Rock’s bad bank in profit, good bank in loss

August 3, 2010 by Brendan

News

It has been three years since Northern Rock was bailed out by the taxpayer and nationalised. Since then, the bank was split into two banks and the latest figures show that the ‘bad bank’ has already moved into profit whilst the so-called ‘good bank’ continues to make heavy losses.

The ‘good’ bank is so named because it is the part of the bank that is offering new mortgages and taking on new business; this part of the bank controls the deposits made by savers. Since the government retracted its guarantee, many savers have moved their money from the bank. This is the part of the bank that is working towards eventual privatisation and has reported losses of over £142 million.

The ‘bad’ bank is the part that retained all the existing mortgages and was considered the high risk area. This half is called Northern Rock Asset Management and it reported pre-tax profits for the first half of this year to the tune of £349.7 million.

These are the first reported figures for Northern Rock since it split in half last year.

The good results for the bad bank are due to record low interest rates, meaning that around 90% of the borrowers are able to pay their monthly repayments.

Despite these figures, the group still owes the taxpayer a huge £22.5 billion and has repaid just £300 million in the first six months of the year.

The bank’s bad debts fell, the number of repossessions has fallen and the results look encouraging.