Northern Rock Losses Grow

Northern Rock – the 1st British bank to receive Governmental aid and to be nationalized in the beginning of 2008 - has recently reported an increase of its losses, which amounted to 24% and constituted £724.2 million in the first two quarters of the year of 2009, which compares to only £585.4 million in the first six months of 2008. Northern Rock also reported a stunning 3.92% of its mortgages being 3 or more months in arrears, which is well above the country’s average that amounts to 2.39%. Even though BBC analysts assume that Northern Rock might be over its worst times, the bank’s mortgages are still continuing to turn bad at a pace, exceeding that of its rivals. For instance, Mr. Robert Peston, business editor for BBC, is determined that the Government’s chances of selling Northern Rock back to the private sector at a profit are very slim. Moreover, NIESR (the National Institute of Economic and Social Research) director, Mr. Martin Weale, said that Northern Rock’s mortgage book might see even harder times. He believes that if house prices continue their decline and if UK unemployment progresses at a faster pace, many of borrowers with 100% or 125% mortgages might become unable to keep up with their mortgage repayments. Even now, 39% of Northern Rock borrowers own houses that are worth less than they owe, which compares to 33% at the end of 2008. The situation might become better when Northern Rock splits itself into 2 different companies (the bank is now in the process of doing so). One of companies will be responsible for savings accounts as well as for the new lending, while the other will handle existing loans and the bank’s loan to the UK Government. When the restructuring of Northern Rock is complete, the Treasury might provide it with additional funding in case the European Commission approves the plan.