Northern Rock Releases Annual Report

by Jason Gorringe, Tax-News.com, London

01 April 2008

Newly nationalised UK lender, Northern Rock on Monday issued its Annual Report and Accounts for the year ended December 31st, 2007.

The report addressed the problems faced by the company over the past year, and looked at how this stands to affect its future on both a long and short term basis.

Reflecting reflect the impact of deteriorating market conditions and the effects of significant liquidity and funding constraints on the company, the official 2007 Operating Performance Results were as follows:

• Total gross lending for 2007 of GBP32.3bn (2006 - GBP33.0bn) with total net lending of GBP12.2bn (2006 - GBP16.6bn);
• Performance reflecting a significant slowdown in lending during H2 2007, in response to funding constraints;
• Credit quality reflecting deteriorating market conditions, with 0.57% of mortgage accounts 3 months or more in arrears (June 30th 2007: 0.47%)

In terms of profitability, Northern Rock revealed that during the period in question, it had experienced:

• Statutory loss before tax of GBP167.6mn (2006 - GBP626.7mn profit) due to exceptional costs related to "the company’s strategic review and impairments to treasury and other assets reflecting the global financial market conditions, and increased impairment provisions on mortgages and unsecured loans reflecting deteriorating market conditions and an increase in default rates"
• Underlying profit before tax, excluding treasury impairments and non-recurring costs, of GBP421.9mn (2006 - GBP587.2mn).

Commenting on the outlook for the future, the bank announced that:

"In 2008 the business is expected to be significantly loss-making, contributed to by the anticipated one-off restructuring costs, higher funding costs and a deteriorating credit environment.The provisional business plan anticipates an improvement in profit before tax to breakeven in 2011, followed by progressive profit improvement thereafter."

Despite its losses, Northern Rock has promised to repay in full the GBP24bn owed to taxpayers by 2010.

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