Northern Rock today admitted that the cost of last year's near-collapse left it nursing a £167m loss, and warned that it will not return to profit for at least the next three years.

The bank, which was taken into public ownership in February, pledged not to try to offer customers the best deals in the market while the government is keeping it afloat.

It also confirmed that it has agreed to pay former chief executive Adam Applegarth up to £760,000 and increase his annual pension by more than £40,000 a year to £304,000.

He also received £5,000 from the company to cover his legal bills, and continues to enjoy a discounted rate on part of his mortgage. Increased security on his home, costing between £5,000 and £10,000, was also paid by Northern Rock.

Ron Sandler, chairman of Northern Rock, refused to discuss the pay off at a press conference, arguing that the decisions were taken before he was appointed.

Angry unions and MPs said the government should reveal why the lender has paid Applegarth more than double the amount it intended when he could reasonably be described as the chief architect of a "reckless" business model.

Unite, Britain's largest union, said there should be a full investigation of the lender's crash last year. It said: "Those who contributed to the failure of Northern Rock must be held to account."

It is understood the main City watchdog, the Financial Services Authority, sought legal advice on taking action against Applegarth and other senior executives, but agreed to take no further action.

Applegarth quit Northern Rock last December, three months after the lender was bailed out by the Bank of England.

'Significantly loss-making'

In its annual report, published this morning, Northern Rock revealed that it made a loss of £167.6m in 2007, compared with a profit of £626.7m the previous year. It expects to be "significantly loss-making" this year, and will not return to profit until 2011.

Last year's loss included £127.7m of "professional fees and costs" - thought to include payments to banks, law firms and PR agencies - after it was forced to seek emergency funding from the Bank of England last September.

As well as its own costs, Northern Rock must pay £12.5m of costs run up by the Bank of England, the Financial Services Authority and the Treasury.

Sandler hopes the Newcastle-based bank can be returned to private ownership in a slimmed-down form. He said 2,000 jobs would be cut over the next two years, most of them in the next 12 months.

Northern Rock currently owes the Bank of England £24bn, but said today it hopes to repay this by the end of 2010.

The company grew its share of the mortgage and savings market significantly in recent years with a series of attractive offers. Now that it is under temporary public ownership, such tempting offers will no longer be on the table.

Sandler said: "We will be a more modest participant in the mortgage market with a more prudent book than has been the case historically."

It has committed itself to a "competitive framework", under which it promises not to use its government support as an unfair advantage. The framework includes a pledge to limit its share of retail deposit balances to 1.5% in the UK and 0.8% in Ireland, and its share of gross new mortgage origination to no more than 2.5%.

It also promised not to rank in the top three in any of the major retail savings products categories during 2008.






Source: Guardian