Northern Rock Loss, RBS to Split

123jump.com Staff
23 Feb, 2009
New York City

Stocks in UK and in Europe declined as persistent worries related banking sector remain on top of investors list. Northern Rock reports a loss of

[R]1:00PM New York, 6:00PM London - Northern Rock reports a loss of £1.4 billion. Royal Bank of Scotland to split into two units in the hopes that the segregating the troubled portfolio of loans will help the bank save operating costs.[/R]

Stock in London indexes fell marginally on news that Northern Rock annual loss will soar to £1.4 billion on write offs of £900 million on defaulting borrowers and £300 million in investments.

Market sentiment was also weakened by news that Royal Bank of Scotland will split into two units: with one concentrating on core business, while the other unit will isolate the lender''s toxic assets.

In London trading FTSE 100 index dropped 0.1% or 38.33 to 3,850.73.

Of the FTSE 100 index stocks, 35 rose, 66 declined, and one was unchanged. Royal Bank of Scotland led advancers in the index shares with a rise of 9.8%.

Northern Rock to Increase Lending to £14 billion

The U.K. Treasury reported today in a statement that Northern Rock will increase mortgage lending to £14 billion over the next two years.

Under the new business strategy, £5 billion of new mortgage lending will be made in 2009 and between £3 and £9 billion will be made from 2010 onwards.

Northern Rock will also be restructured- subject to state aid approval- so that the existing book of mortgages is managed separately to its other business.

""The Government has made clear that it wants to see a well functioning mortgage market where lenders lend responsibly and borrowers have access to a wide range of mortgages that they can afford to repay,"" said the U.K. government.

Separately, the lender reported an annual loss of £1.4 billion in 2008 as £900 million was written off on defaulting borrowers and a further £300 million in investments.

Borrowers more than three months in arrears on their mortgage payments rose from 1.87% in September 2008 to 2.92% by December 2008

However senior staff bonuses will be paid in loan notes, not cash, and deferred until 2010. A full statement of financial result will be made on March 3.

Royal Bank of Scotland to Split into Two

Royal Bank of Scotland will split into two units over three to five years with one unit including its core business and the other holding toxic assets and other peripheral operations. The move is intended to save £1 billion.

RBS will put £200 billion assets into the scheme and withdraw from countries in Asia and discontinue some product lines.

Gainers & Losers

Royal Bank of Scotland led advancers in the FTSE 100 index shares with a rise of 9.8% followed by increases in Legal & General Group of 5.2%, in Barclays Plc of 3.7%, in Admiral Group of 3.2%, and BG Group of 2.3%.

3i Group led decliners in the FTSE 100 index shares with a decline of 7.1% followed by losses in Rolls-Royce of 5.4%, in RSA Insurance Group of 4.1%, in BAE Systems of 3.7%, and Scottish & South of 3.7%.

Vodafone to Cut U.K. Jobs

TimesOnline reported today that Vodafone will cut hundreds of jobs in the U.K. in order to lower costs by £1 billion.

The mobile telecommunications company employs 10,000 people in the U.K.

Europe Markets Review

In London FTSE 100 Index closed lower 38.33 or 0.99% to 3,850.73, in Paris CAC 40 Index decreased 22.68 or 0.82% to close at 2,727.8 and in Frankfurt DAX index lower 78.21 or 1.95% to close at 3,936.45. In Zurich trading SMI decreased 54.09 or 1.11% to close at 4,797.12.