Mixed fortunes for good and bad bank

Northern Rock was separated at the start of the year from its sister bank Northern Rock Asset Management, which holds risky loans.

A first major UK casualty of the credit crunch, Northern Rock suffered from record low interest rates during the first six months of the year. It lost nearly 2bn of retail savings after the removal of the Government's 100 per cent guarantee in May.

But while the good bank struggled, the bad bank was able to report underlying pre-tax profits of 167.3m, compared with losses of 243.9m a year earlier. Northern Rock AM said bad debt charges fell to 277.6m, as low interest rates helped home owners meet mortgage payments.

Gary Hoffman, chief executive of both Northern Rock and Northern Rock AM, said good progress is being made on merging the bad bank with Bradford & Bingley's mortgage book, to create a huge portfolio of toxic loans.

The Government is nevertheless keen to return the good bank to the private sector to reduce its deficit.

However, Northern Rock Asset Management still owes the state 22.5bn, despite repaying 300m during the period.

Mr Hoffman said Northern Rock is moving in the right direction for a sale but stressed "there is no deadline, no timetable, no process".

"We remain committed to returning to private ownership when the time is right," he said.

Mr Hoffman added Northern Rock may resume offering credit cards and unsecured personal loans, which were pulled after its collapse.