Bonuses for Rock staff as losses shrink

The bank also revealed it is to pay staff bonuses worth a total of more than 13m after hitting targets, although its chief executive will not take his 700,000 bonus.

The former building society, which was nationalised more than two years ago after the first run on a UK bank in more than a century, said its underlying pre-tax loss shrank to 383m in 2009 compared with 1.3bn in 2008.

Levels of mortgage arrears stabilised in the final quarter of the year, which Northern Rock said indicated the bank has turned a corner and is on the "right trajectory".

Along with Bradford & Bingley, Northern Rock was one the country's most aggressive lenders at its peak, with products including its infamous Together mortgage which lent would-be homeowners more than their property was worth. These mortgages are driving arrears and repossessions today.

"We still think the recovery is going to be uncertain and will take some time," said chief executive Gary Hoffman.

Northern Rock's loan impairment charge rose to 1.04bn from 894m year earlier.

The proportion of mortgages three or more months in arrears rose from 2.92 per cent at the end of June to 4.28 per cent at the end of September, but had not increased further by the end of the year.

That rate far exceeded the 2.38 per cent average arrears rate in the sector. Excluding Together loans, which account for 30 per cent of its total loan book, arrears rose to 3.1 per cent.

The bank's Together mortgage – which lent up to 125 per cent of the value of a home – saw its arrears rate rise to 6.93 per cent.

Mr Hoffman said impairments had peaked in 2009, but warned they would remain high this year compared to historic levels.

He said unemployment and house prices will be key to determining loan impairments in the future, but he said there had been signs of improvement in both areas towards the end of last year.

The number of repossessed properties held by the bank halved from the 2008 peak and was 2,061 at the end of 2009 compared with 3,620 a year before.

Mr Hoffman said this was down to efforts to keep households in their homes.

He also defended bonuses to staff, which will be paid after the bank hit lending and other targets, and were approved by the Treasury .

Northern Rock met its state requirement and increased mortgage lending to 4.2bn last year, from 2.9bn in 2008. But on a net basis lending was down 6.3bn as people repaid their loans.

"There is no reward for failure," he said. "I understand that we are still loss-making but we have beaten the target and we have substantially improved financially."

Staff at the Newcastle-based bank, who earn an average of 20,000 to 25,000 a year, will receive an average bonus of 3,000.

Northern Rock said 32 staff will earn bonuses of more than 25,000.

The bank did not pay senior management bonuses in 2008, and said it gave "modest" payouts to other staff.

Recently, conditions stabilised enough for the Treasury to remove the 100 per cent guarantee on deposits at the end of May.

Earlier this year the bank was officially split into two separate entities, a 'good' and 'bad' bank, readying it for a sale.

This saw an increase in its Government loan by 8.5bn to 22.8bn.

The 'good' bank – Northern Rock Plc – which has taken 10.3bn of the mortgage book and 19bn in retail savings, is set to return to the private sector.

Yorkshire Bank owner National Australia Bank is reportedly considering a bid, while Virgin Money is also thought to be in the frame.

Mr Hoffman said while informal talks were being held, there is "no process, no timetable and no rush" over a sale.

"We have created something that will be attractive to private investors but there is no formal process."

Union gives backing

A leading trade union backed the 13m bonus payment being made to staff at the nationalised bank.

Staff at the Newcastle-based bank will take home bonuses worth an average 3,000.

Rob MacGregor, Unite national officer, said: "Unite supports the bonus payments being made to the staff at Northern Rock as appropriate recognition for the turnaround in the fortunes of the bank.

"The improved financial results are the direct result of the hard work and dedication of the workforce.

"It should be remembered that those we represent are amongst some of the lowest paid workers in the finance industry."