Rock: Crumbling less

Northern Rock's losses are a reminder - not that we need them after a recession caused by a banking crisis - that bankers depart from the boring rules of sensible old-fashioned prudent banking at their (and our) peril.

During the boom years, the now nationalised bank took great pride in insisting that it was able to combine a lower-than-average rate of arrears on its mortgages with the systematic practice of providing homebuyers with its notorious Together mortgages - which were worth 80% or 90% or even 100% of the value of the properties customers wanted to own, topped up with personal loans.

Other banks that wouldn't provide such racy 100% and more loan packages were plainly fuddy duddy.

But after months of falling housing prices and rising unemployment, some 3.92% of the Rock's mortgages are three-months or more behind with the payments - compared with just 1.16% at Barclays (which, by no coincidence, remains profitable).

And the Rock has had to take a charge of £602m for the impairment of those home and personal loans.

This charge for loans that are going bad was significantly worse than in the first half of last year, but a little bit better than in the latter half of 2008.

So there are signs that the Rock may be over the worst.

It's now awaiting approval from the European Commission to break itself up - and create a slimmed down bank with fewer of the poor loans in it.

That's a prelude to the privatisation of a re-sculpted Rock.

How far off would such a privatisation be?

Well on the evidence of these figures, many in the City - except those angling for a sale fee - would argue that it would be better not to rush into disposal.

Taxpayers are currently nursing a pretty hefty loss on their ownership of the Rock - though this is not what the chancellor said would be their fate.

The best way to recover that loss is probably to allow Gary Hoffman and his team the time to demonstrate - which is not impossible - that there is an attractive banking franchise hidden beneath those poor quality mortgages and personal loans.

Which may take a good couple of years. Any earlier sale could well deprive taxpayers of full value.

PS. The Rock and the Treasury had said that this bank would do its bit to stem the contraction in the mortgage market by providing £5bn of additional mortgage loans this year.

Because its capital has been so eroded by losses, and because that capital can't be topped up till the European Commission approves the break-up, the Rock will undershoot that target by £1bn.

Which probably makes it a bit harder for ministers to duff up other banks as and when there are allegations that those banks aren't lending enough.

UPDATE, 10:08: I should, of course, point out that the Treasury's policy - now abandoned - of forcing speedy repayment of the Bank of England's emergency loans to the Rock increased the proportion of poisonous loans in the bank's loan book.

Last year the Rock put acute financial pressure on better quality borrowers to transfer their mortgages to other banks. And the Rock was left with those borrowers whom other banks didn't want.

This of course had the effect of increasing the percentage of the Rock's loan-book that's in arrears.

But it should not have had any effect on the absolute level of the charge for loans going bad.

That would have been horrendously large even if the Rock hadn't said cheerio to more credit-worthy customers.