Coming together to give 'bad banks' a good name

When it makes a 167m pre-tax profit and the good bank makes a 140m loss.

That was the case at Northern Rock in August and it's a good example of how unhelpful terms such as good and bad have become in banking.

It's a view shared by Richard Banks, chief executive of the recently created UK Asset Resolution (UKAR), the new company that unites Bradford & Bingley's 39bn mortgage book with Northern Rock's 54bn portfolio of mortgages and personal loans, recently renamed NRAM - Northern Rock Asset Management.

"This is not an amalgamation of bad banks," he said.

"The vast majority – over 90 per cent – of our customers are repaying their mortgages and loans in the normal way. Both parts are profitable."

Of course that is not to say UKAR is as healthy as its rivals – B&B and NRAM have twice the average levels of arrears as their non-bailed out rivals – but it is certainly not a basket case.

When B&B's mortgage book was nationalised in 2008, its savings book was sold to Spanish bank Santander.

The Spanish bank has subsequently rebranded the B&B branches as Santander, which means UKAR has the only remaining B&B brand.

It's a bit more complex at Northern Rock. The bank, which was taken over by the Government in early 2008, was split into a so-called "good" and "bad" bank last year.

The part holding the majority of residential mortgages

and unsecured loans was renamed Northern Rock Asset Management (NRAM) while the savings and lending bank – Northern Rock – will eventually be sold.

UKAR was established earlier this month to help the

taxpayer recoup more of their money from the nationalised banks.

"Our overall objective is to have an orderly wind-down and repay Government debt while treating customers and creditors fairly," said Mr Banks.

"The strategic goal is to pay the 50bn Government debt, but it won't happen very quickly."

Earlier this month it was announced that UKAR will have its headquarters in Yorkshire.

Bradford & Bingley's Crossflatts home in Bingley was a practical rather than an emotive choice.

Crossflatts was set up to be a head office, whereas Northern Rock's properties in Newcastle and Sunderland are not.

Of the total 2,200 employees at UKAR, 950 will be based at Crossflatts, 700 in Newcastle and 550 in Sunderland.

Contrary to reports, there are no plans to relocate the North East staff to Yorkshire.

In fact, there are no plans to bring the two mortgage books together.

"This is not a full merger of the balance sheets," said Tim Newman, UKAR's head of marketing. "We will have a separate NRAM mortgage book and a separate B&B book."

There has been much speculation about future redundancies, but Mr Newman said there are no plans for significant job losses.

"We are actively filling vacant jobs at the moment," he said.

"We have a huge mortgage book that needs to be managed,

we need these people. It's good for Yorkshire and it's good for the North East."

Instead UKAR is to focus on other efficiencies such as systems integration, supplier consolidation and treasury and funding efficiencies.

"The short term goal is to integrate the two organisations on to single technology platforms and make it more cost-efficient," said Mr Banks.

It's less than a month old, but so far UKAR has met with the approval of the body that set it up, UK Financial Investments (UKFI), the organisation that oversees the state's banking assets.

Phil Murden, senior manager at UKFI, said: "NRAM and B&B have been making good progress under public ownership and the establishment of UKAR brings them closer together."

He added that integrating the businesses under a common governance and management structure is an important step which will help maximise value for the taxpayer.

While the first and foremost goal is to repay the taxpayer, there may be an opportunity for UKAR to have a life beyond that.

"If we can create an organisation that is very good at what it does and we facilitate full repayment of the Government debt, maybe we have an alternative future," said Mr Banks.

"We could continue servicing mortgages, whether it's new mortgages or mortgages we've already got.

"We could be much more than B&B and NRAM."

For now the focus at UKAR is to run the business as efficiently as possible and pay the taxpayer back, but UKAR is far from being a lender with no hope of a future.

Rock- solid repayments

Northern Rock Asset Management (NRAM) – which was split off from the "good" part of nationalised Northern Rock in January – has repaid 700m in the past three months alone after returning to profit in the first half.

Its recent repayments are more than double the 300m handed back in the six months to June 30 and comes at a welcome time as the Government scrambles to raise cash and reduce its gaping deficit.

NRAM clawed its way out of the red in the first half, with underlying pre-tax profits of 167.3m against losses of 243.9m a year earlier.

The group said this trend has continued into the second half of the year so far.