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Rock pledges to repay taxpayers Rock pledges to repay taxpayers
(30 minutes later)
Newly-nationalised bank Northern Rock has promised to repay its £24bn state loan by 2010 despite warning that it would not break even for three years.Newly-nationalised bank Northern Rock has promised to repay its £24bn state loan by 2010 despite warning that it would not break even for three years.
The bank said it would be significantly loss making in 2008, after posting a pre-tax loss of £167.6m in 2007. The bank added that it would be "significantly loss making" in 2008, after a 2007 pre-tax loss of £167.6m.
Northern Rock also revealed that it will pay former chief executive Adam Applegarth a total of £785,000 as part of his severance agreement. Northern Rock also revealed that it would pay former chief executive Adam Applegarth a total of £785,000 as part of his severance agreement.
Shareholders have criticised the payout after the bank ran into problems.Shareholders have criticised the payout after the bank ran into problems.
Staff cutsStaff cuts
Northern Rock had to be rescued by the Bank of England in September 2007 after coming close to insolvency.Northern Rock had to be rescued by the Bank of England in September 2007 after coming close to insolvency.
BBC business editor Robert Peston said any severance payments to Mr Applegarth were always likely to provoke controversy.BBC business editor Robert Peston said any severance payments to Mr Applegarth were always likely to provoke controversy.
However, he added that the £760,000, plus £25,000 in non-cash and other benefits, that Mr Applegarth will receive is less than his contractual entitlement. However, he added that the £760,000 payment, plus £25,000 in non-cash and other benefits, that Mr Applegarth will receive is less than his contractual entitlement.
It's by no means all bad news Robert Peston,BBC business editor Read Robert's thoughts in full
One contributor to the bank's loss was just under £50m of payments to City firms and professional advisers, incurred by it and the government when it was struggling to avoid nationalisation.One contributor to the bank's loss was just under £50m of payments to City firms and professional advisers, incurred by it and the government when it was struggling to avoid nationalisation.
As it tries to get back on its feet, Northern Rock said it would cut costs by 20%, and trim staff numbers by a third over the next three years.As it tries to get back on its feet, Northern Rock said it would cut costs by 20%, and trim staff numbers by a third over the next three years.
It also wants to have a smaller business and plans to reduce its balance sheet to close to £50bn from about £107bn. It also wants to have a smaller business and plans to reduce its balance sheet to close to £50bn from about £107bn in 2007.
The BBC's Robert Peston said that while the bank's earnings figures looked worrying, "it's by no means all bad news".
"Ignoring the exceptionals, write downs and one-off charges, pre-tax profit emerges at about £420m for the year, sharply down on the £590m made in 2006, but indicative of a business with a future", he said.
Wider problemsWider problems
Northern Rock ran into trouble after problems in the US housing market prompted a global credit crunch.Northern Rock ran into trouble after problems in the US housing market prompted a global credit crunch.
Faced with deteriorating market conditions, many banks stopped lending to each other and Northern Rock's main source of financing dried up.Faced with deteriorating market conditions, many banks stopped lending to each other and Northern Rock's main source of financing dried up.
As a result, it was forced to approach the Bank of England for emergency funding, which prompted a run on the lender, the first on a UK bank in more than 100 years.As a result, it was forced to approach the Bank of England for emergency funding, which prompted a run on the lender, the first on a UK bank in more than 100 years.
Critics have blamed the bank's former management, and in particular Mr Applegarth, for borrowing too much money from the financial markets to fund Northern Rock's business.Critics have blamed the bank's former management, and in particular Mr Applegarth, for borrowing too much money from the financial markets to fund Northern Rock's business.
They have complained that the bank's aggressive lending policy and a failure of oversight from market regulators led to the nationalisation of Northern Rock and a slump in the value of their investments.They have complained that the bank's aggressive lending policy and a failure of oversight from market regulators led to the nationalisation of Northern Rock and a slump in the value of their investments.
Northern Rock's business model meant that it borrowed money to fund about 60% of its total lending, with savers' assets making up the rest of the money.
That level of funding from the financial markets was almost double that of many of its rivals, who relied more heavily on money provided by savers.