London: British bank Northern Rock said on Tuesday its first-half losses rose almost 24%, as delays to EU approval for its state-backed turnaround hit funding costs and held back its ability to help revive the UK mortgage market.
The lender — nationalised in early 2008 after it became the first major British victim of the credit crunch — also warned the outlook for the UK mortgage market remained uncertain, with arrears still increasing despite some “encouraging signs”.
The bank said it saw an improvement in early stage arrears, adding the impairment charge in the second half would be broadly similar to the first half, before beginning to reduce in 2010. It warned, however, that uncertainties remained around unemployment levels and a revival in property prices.
Northern Rock said its first-half statutory loss of £724.2 million ($1.2 billion) was swollen by the £298.2 million cost of a hedge against interest rate and currency volatility and by £156.4 million of charges linked to government funding, which it expects to get back once its restructuring plan is approved by the European Union.
Excluding those two items, its underlying loss reduced to £269.6 million from £443.3 million a year ago, despite a hefty £602 million impairment charge.
Earlier this year the UK government said it planned to inject billions of pounds into state-owned Northern Rock, helping it lend up to £14 billion between 2009 and 2010 to pump some life into UK home loans. But the bank said on Tuesday that it would fall short of its 2009 lending target as its capital position remained constrained.
The bank said its new lending would be “nearer to four billion pounds” in 2009, rather than the planned 5 billion.
“We are capital constrained,” Northern Rock chief executive Gary Hoffman said. “But given a (loan-to-value) for new business at 57% if, hypothetically, we could lend more, there would be demand for that.”
Hoffman said the bank expected EU approval for its turnaround in the autumn, helping it conclude its restructuring and recapitalisation and prepare itself for a return to private hands. But he said there was no timetable for a sale.
The bank, one of the country’s top mortgage lenders before its near-collapse two years ago, said residential mortgage accounts over three months in arrears, including the lender’s Together loans for first-time-buyers, rose to 3.9% at the end of the first half, from 3.7% at the end of March.