Northern Rock reduces loses by £1bn, declares £15m bonuses
Northern Rock Plc ha said yesterday that it has decided to pay £14.9m in bonuses to its staff after the state owned bank was able to bring down its losses by £1billion.
The bank said that about 32 employees will get a bonus exceeding £25,000 on which the government has imposed a super tax rate of 50 per cent. The company will pay a total of £1.5 million as super tax to the government.
Gary Hoffman, the CEO of Northern Rock said, "We have beaten the target the Government and our board set us by over £500m. It is therefore absolutely right that the vast majority of the money goes back to the taxpayer."
Hoffman further said that he was very sensitive to the public opinion on the matter and expressed the bank overshot the target by £500 million and hence the staff deserves to be rewarded. He has waived his own bonus amounting to about £700,000; however a new plan is being prepared under which he will be rewarded once the bank returns to profits.
The union Unite has announced that backs the bonus. Unite said it is an "appropriate recognition for the turnaround in the fortunes of the bank."
The bank suffered a loss of £1.36bn in 2008 which it brought down to £257.4m last year. However accounting experts see it as a profit before tax of £467 million. Mr. Hoffman indicated that the bank benefited from the improved economic conditions and agrees that the outlook is still uncertain.
He said that the bank has tried to help its customers in difficult times by investing large amounts. The bank has benefited as the some of the mortgage customers were paying more on bank's standard variable interest rate of 4.79 per cent instead of fixed-rate deals.
The bank managed to stabilize arrears in the final quarter of 2009 at 4.28 per cent while the homes under its possession went down form 3,620 at the end of December 2008 to 2,061.
Mr. Hoffman said that the bad loans had probably reached its peak in 2009. He expects that even the troubles Northern Rock Asset Management could be sold however the £22.8bn Government loan would be an obstacle.
He clarified that the government is not putting pressure on him for the sale of business however he said that he expects interest as the banks are well capitalized with good liquidity levels.
