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Major losses at State rescued banks

Northern Rock, the nationalised bank, reported losses yesterday which had risen by 24%. The bank was nationalised in February 2008 because it was unable to fund its business in the money markets and customers were defaulting on their loans. It reported a total loss of £724.2m in the first six months of this year, which compared with a loss of £585.4m for the same period in 2008. It now owes the government £10.9bn.

 

If house prices continue to fall and unemployment continues to rise then even more of Northern Rock’s customers are going to struggle to meet their repayments. In fact, many of their customers are now in negative equity, whereby their home is worth less at current market rates than the total value of the mortgage loan they have taken out. The statistics show that the number of their customers whose properties are currently worth less than their mortgages has risen to 39%, which compares with 33% at the end of 2008.

 

This morning Lloyds Banking Group reported their half-yearly figures. Lloyds took over HBOS in January, and announced a loss of £4bn in the first six months of this year after writing down the value of assets which were worth less than they had originally thought.

 

Lloyds Banking Group is 43% owned by the government and had to take a £13.4bn charge in its accounts which was mainly due to bad loans. Of these bad loans, 80% were attributed to HBOS.

 

These figures reflect the extraordinary risks which both Northern Rock and HBOS were taking on their lending books during the global financial free-for-all which sparked off the credit crisis and subsequent recession around the world. Although the worst should now be over for both of these institutions it is unlikely that the government will be able to sell its stake in either group before the next election – especially if it wants to make a profit on the sale.

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Posted in Banking, Housing, nationalisation, recession

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