Northern Rock bonus pay-out despite £232m loss

Northern Rock said yesterday it was paying staff £13.1 million in bonuses for 2010 despite posting a multimillion-pound loss for the year. Most of the bank’s 4,500 staff, who on average earn £25,000 a year, will receive a payout of around 10 per cent of their salary. Executive chairman Ron Sandler, who is paid £250,000 a year, is not eligible for a 2010 bonus.

The payout came as Northern Rock recorded pre-tax losses of £232.4 million in 2010, but narrowed losses in the second half of the year to £92.4 million, compared to £140 million in the first six months.

The bank said it continued to work closely with UK Financial Investments, the body charged with overseeing the government’s banking assets, to return the company to private ownership.

Northern Rock was nationalised in February 2008 after it collapsed amid the credit crisis, sparking the first run on a UK bank for 150 years.

The government split Northern Rock in two at the start of last year, forming a mortgage and savings bank called Northern Rock plc and Northern Rock Asset Management to house the more toxic loans.

The government’s 100 per cent guarantee for Northern Rock deposits was also removed last year.

Earlier this year, the government launched a tender for advisers to look at options for Northern Rock plc (the so-called “good” part of the bank) including a possible sale.

Executive chairman Sandler said the annual loss was “disappointing” but the bank was making progress.

He said: “It remains a difficult trading environment for a small bank dependent on retail funding, with a combination of low interest rates, subdued mortgage market demand and high competition for retail savings.

“However, the underlying loss incurred in the second half of the year was lower than in the first half, demonstrating that progress is being made, and I am confident that the company is on the right trajectory to profitability.” The bank did not offer a detailed update on returning the business to private ownership. Mr Sandler said: “We continue to work closely with UKFI on the strategic options for returning the company to private ownership, in the best interests of taxpayers, and we will provide a further update in this regard in due course.”

Gross residential lending at the bank was £4.2 billion in 2010, while net residential lending stood at £1.9 billion.

The company said its bonus pool reflected achievement against objectives for 2010, such as the completion of the restructure and the release of government guarantees ahead of plan.

Mr Sandler said only one executive director received a bonus: Jim McConville, chief financial officer, who was awarded £185,000 for 2010.

Mr Sandler would not give any indication as to when the bank hopes to return to profit.

However, he said the bank would not be exploring options to return to private ownership if it did not expect to return to profit.