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Northern Rock makes great progress after buy out

Press release March 2, 2012 Economy

Northern Rock are making profits

Remember the stress and panic of 2008 when the Government had to buy out Northern Rock. Northern rock was nationalised in 2008 amidst fears of going bust, queues of people lined the streets to get their money out of the unsecure bank. The fear of people losing their money was obvious and the government had no choice but to bail them out.

There was big controversy in November when the government sold the so-called good bits of Northern Rock to Virgin at a loss which could be greater than £500m. 4 years on, Northern Rock are making astonishing progress. They reported profits of £1.09bn, up from £444m in 2010, after a fall in losses on bad debts. Britain are set to make a profit of an estimated £9bn-£11bn on it’s bail out of the bank, but experts say it may take up to 15 years to get all of the cash back.

What is remarkable is that the annual profit on this business, now called UK Asset Resolution, the joint nationalisation of Bradford and Bingley and Northern Rock; exceeds the losses incurred by the Treasury on privatisation.

The reason for the big profit - which also allowed UK Asset Resolution to repay £2bn of money it borrowed from the Treasury - is that there has been a sharp reduction in loans going bad and running costs have fallen. UK Asset Resolution has an impressive portfolio worth £77bn in mortgages, making it the 5th largest mortgage lender in the UK. The reason it is making a profit whilst paying off debts is because it is managing the clients it has with care and not taking on any new business.

Even more encouraging, UK Financial Investments, which manages taxpayers' holdings in banks, estimates that the government will have generated a cash surplus of £10bn when all Northern Rock's mortgages are eventually repaid.

That would represent an annual rate of return in the region of 3.5% to 4.5% for the Treasury, which is perhaps a tiny bit better than what it costs the government to borrow. Or to put it another way, taxpayers may eventually end up with a genuine profit on the 2008 nationalisation of Northern Rock.

The nationalisation of Northern Rock brought with it lots of criticism, this article would suggest that it wasn’t such a bad thing after all. It is making profit and re-paying debts at the same time.