Northern Rock To Get £3 Billion Cash Injection

In its first results as a nationalised bank, Northern Rock has announced first half year pre-tax losses of £585 million.

However, the bank has also announced that net borrowings provided by the Bank of England have reduced by £9.4bn to £17.5bn from £26.9bn at the end of December 2007, representing a 35% reduction.

Now it has emerged that the Government, which nationalised the lender in February, is set to inject a further £3bn to help its finances.

The cash boost will come from suspending payments of the loan made to the bank and about £3bn of that being converted into equity.

Chancellor Alistair Darling told BBC Radio 4's Today Programme that Northern Rock found itself in a "very difficult position" and that the bank "needs more shared capital".

"We've got to get state aid approval for that so we can't give a precise figure, but up to £3bn will be necessary," he said.

The Newcastle-based bank said that "the deterioration in market conditions, particularly the downturn in the housing market, has led to the need to strengthen the capital position of the company to meet regulatory capital requirements".

The bank also said that residential arrears over three months have "more than doubled" since the start of the year to 1.18% (0.45% at the end of 2007).

Executive Chairman, Ron Sandler said: "On a net basis, the Government debt has reduced by £9.4bn since the start of the year, which is considerably ahead of plan. Operational restructuring is well advanced and both the Board and management team have been bolstered by key new appointments. We have also substantially overhauled the risk procedures in the company.

Mr Sandler added: "I wish to thank all members of staff and applaud their maintenance of the highest levels of customer service and professionalism in what has undoubtedly been a most difficult time for Northern Rock's employees."

The bank is increasing staff numbers in debt management from 185 to around 500 for those customers who find it difficult to make ends meet.

Northern Rock has also advanced some loans worth as much as 125% of home values, to some customers.

The bank was taken into public ownership earlier this year when it failed to find a suitable buyer from the private sector and in a scaling-back process, Northern Rock reduced the number of its mortgage accounts by 15%.

Loans and advances to customers have also been cut back by £14.5bn.

Last week, the bank also announced that it was to cut 1,300 jobs in an effort streamline the business.

See: Northern Rock Reveals Job Cuts

(DS)