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Northern Rock sees loss of £167.6m in 2007

Northern Rock saw a statutory loss before tax of £167.6m, down from 2006’s £626.7m profit, it has revealed in its full year results today.

The bank’s total net lending fell to £12.2bn in 2007, down from £16.6bn in 2006. Total gross lending was £32.3bn, down slightly from £33bn in 2006.

It says total operating expenses were £276.1m, down from £277.5m in 2006. It also had non-recurring expenses of £127.2m incurred during H2 2007 as a result of the strategic review process and impairment charges mainly on properties.

Underlying profit before tax, excluding treasury impairments and non-recurring costs, was £421.9m compared to £587.2m in 2006.

Northern Rock says that it expects the business to be significantly loss-making in 2008 but its provisional business plan anticipates an improvement in profit before tax to breakeven in 2011.

The bank has also announced today that it plans to reduce the balance sheet from around £107bn in 2007 to approximately £50bn by the end of 2011.

It says it will be accelerating mortgage redemptions, with a target redemption level of about 60 per cent after end of customer product period.

The lender will be discontinuing unsecured lending and it is proposed to also discontinue commercial lending.

The board believes it will repay the Bank of England debt – now standing at around £24bn – by the end of 2010.

It will establish a funding strategy with retail deposits representing approximately 50 per cent of total funding by 2012.

The bank also aims to achieve a long-term credit rating of at least A- on a standalone basis.

Executive chairman Ron Sandler says: “The 2007 results reflect the impact of deteriorating market conditions and the liquidity and funding constraints experienced in the second half of the year by the Company.

“Looking ahead, we have developed a business plan that we believe will help drive the bank back towards profitability, and ensure it has a sustainable future and remains an important employer in the North East.

He adds: “In doing so, we have worked hard to strike a sensible balance between our requirement not to use Government support to compete unfairly, and our commitment to meet Government’s objectives by creating a business that is sufficiently secure financially for taxpayer support to be progressively withdrawn. To this end, we have today launched a Competitive Framework comprising a set of principles and specific restraints that will be carefully monitored. Without distorting competition, we are determined to create a viable business to be returned to the private sector.”

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