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Northern Rock makes a £585m loss Northern Rock makes a £585m loss
(20 minutes later)
Northern Rock has announced bigger-than-expected losses of £585.4m for the first six months of the year.Northern Rock has announced bigger-than-expected losses of £585.4m for the first six months of the year.
Much of the loss came from the charges it takes to cover losses from struggling mortgage borrowers.Much of the loss came from the charges it takes to cover losses from struggling mortgage borrowers.
But it also managed to repay £9.4bn of a loan from the Bank of England, reducing the amount owed to £17.5bn.But it also managed to repay £9.4bn of a loan from the Bank of England, reducing the amount owed to £17.5bn.
The government, which nationalised the lender in February after the first run on a UK bank in more than a century, will inject £3bn to help its finances.The government, which nationalised the lender in February after the first run on a UK bank in more than a century, will inject £3bn to help its finances.
Northern Rock revealed that the total percentage of its residential mortgage customers in arrears had risen sharply from last year. 'Mega rights issue'
In June 2007 the figure stood at 0.38% of mortgages, but it has now risen to 1.18%.
The money for the £3bn cash injection will come by pausing repayments of the giant taxpayer loan made to the bank, and about £3bn of that will be converted into equity.The money for the £3bn cash injection will come by pausing repayments of the giant taxpayer loan made to the bank, and about £3bn of that will be converted into equity.
"Or to put it another way, the nationalised bank is having a mega rights issue that taps its one shareholder," BBC business editor Robert Peston said."Or to put it another way, the nationalised bank is having a mega rights issue that taps its one shareholder," BBC business editor Robert Peston said.
Northern Rock was hit hard by the global credit crunch, and its major form of providing mortgage loans - from the wholesale markets - dried up. "It is similar to what other banks have been doing recently, where they have been having rights issues."
"But the £3bn is taxpayers money - that is money that is very much at risk."
Arrears increasing
Northern Rock revealed that the total percentage of its residential mortgage customers in arrears had risen sharply from last year.
In June 2007 the figure stood at 0.38% of mortgages, but it has now risen to 1.18%. That however, is lower than the Council of Mortgage Lenders average of 1.21%.
The company said this is due to more difficult economic and market conditions, which have been exaggerated by reducing the number of their customers by 15%.
The number of house repossessions has risen from 2,215 to 3,710 - an increase of 67%, and represents 0.56% of all mortgage accounts.
The company says this is because it is moving to repossess properties more quickly when it is clear that customers will not be able to maintain their mortgage payments.
Northern Rock was hit hard by the global credit crunch, when its main method of financing mortgage loans - by borrowing cash from the wholesale markets - dried up.
The bank, once Britain's fifth-biggest home loan provider, was taken into public ownership after it failed to find a suitable buyer from the private sector.The bank, once Britain's fifth-biggest home loan provider, was taken into public ownership after it failed to find a suitable buyer from the private sector.