'Toxic' Northern Rock and B&B hand back £1bn

THE group formed from Northern Rock and Bradford & Bingley's toxic loans has paid back another £1 billion to taxpayers so far this year after radically ramping up its debt repayments, it was revealed yesterday.

• NRAM chief Gary Hoffman: "NRAM is being handed over in good shape for the future"

Northern Rock Asset Management (NRAM) - split from the "good" part of nationalised Northern Rock last January - disclosed it had repaid 700 million in the past three months alone after bouncing back into the black in the first trading half.

It came as the group announced it had completed the merger with the nationalised arm of Bradford & Bingley. As part of the move UK Financial Investments, the semi-quango that overlooks the taxpayer stakes in Britain's banks, has set up UK Asset Resolution (UKAR) as a new single holding company for B&B's lending arm and NRAM.

NRAM said that the new holding company had been established "to facilitate the orderly management of the closed mortgage books of both NRAM and B&B" and to boost taxpayer value.

Keith Morgan, the UK head of wholly owned investments at UKFI, said the two banks had been "making good progress under public ownership". He added: "Integrating the businesses under a common governance and management structure is an important step which will help maximise value for the taxpayer."

UKAR will be chaired by Richard Pym, the former chief executive of Alliance & Leicester, who currently chairs both companies.

Non-executive directors of the holding company include Louise Patten, wife of Lord Patten and a former chair of property firm Brixton Estates and grocer Somerfield.

NRAM's sharply increased repayments to the government are more than double the 300m handed back in the six months to end-June and comes at a welcome time as the government scrambles to raise cash and reduce the mountainous public deficit.

NRAM clawed its way out of the red in the first half, with underlying pre-tax profits of 167.3m against losses of 243.9 million a year earlier.

The group said this trend has continued into the second half of the year so far. As part of the structural changes yesterday, Gary Hoffman steps down as chief executive of NRAM and as a member of the NRAM board, but remains boss of the so-called "good" bank, Northern Rock.

Richard Banks, chief executive of UKAR, replaces Hoffman as chief executive of NRAM. Hoffman said: "Following the successful rescue and restructure of the former Northern Rock business, NRAM returned to profitability in the first half of 2010 as income increased, impairment charges were reduced and arrears continued to stabilise.

"This trend has continued in the third quarter and I feel NRAM is being handed over in good shape for the future."

NRAM said repayments of state debt were in line with expectations, although it still owes more than 20bn.It intends to pay back about half of this within five to ten years, but repayment of the full amount will be a lengthy process as mortgage accounts are redeemed.

The "good" Northern Rock is planned to be eventually returned to the public sector, but B&B's loan book is being wound down. UKFI also monitors the taxpayers' 83 per cent stake in Royal Bank of Scotland and 41 per cent holding in Lloyds Banking Group, owner of Bank of Scotland and Scottish Widows.