UKAR Half Year Results Announcement 2012

27 Jul 2012

UKAR has today published its half year results for the six months ended 30 June 2012

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UK Asset Resolution Limited (“UKAR”) which incorporates Bradford & Bingley plc (“B&B”) and Northern Rock (Asset Management) plc (“NRAM”) today issued its half year results for the six months ended 30 June 2012. UKAR's aim is to maximise value for the taxpayer. We are achieving this by combining the two business infrastructures and sharing best practice, and as a result we are reducing costs and improving customer service.

Highlights from the first half year are:

  • Repaid a further £788m in Government loans, reducing the total amount owed to the Government down to £45.8bn.
  • Paid £391m to Government in the form of interest, fees and corporation tax.
  • Mortgage accounts three or more months in arrears have reduced by 9% since the start of 2012.
  • Completion of the integration of the two business infrastructures including the successful transfer of c 350,000 mortgage customer accounts.

Events since 30 June 2012:

  • Purchased £532m of our debt securities at a discount generating profit before tax of £143m.
  • Sold £465m of NRAM mortgages, at par, to Virgin Money which generates a further repayment of the Government loan.

Richard Banks, UKAR Chief Executive, commented:

"We have made strong progress in the first half with further repayments to the Government. Much of our focus is on helping those of our customers who are in financial difficulty and it is pleasing to see a further significant reduction in arrears levels despite the continued economic uncertainty and pressure on consumers' finances."


Underlying profit before tax for the first half of 2012 was £481.4m, down from a £591.8m profit in H1 2011 (FY 2011: £1,089.1m). This reduction in profit was due to the reducing Balance Sheet and the increase in interest payable on the Group's Government loans, partly offset by lower loan impairment charge resulting from an improvement in arrears. Statutory profit before tax was £351.0m compared to £541.5m in H1 2011.

Repricing of the Government Loans

HM Treasury gave notice of an increase in the rate payable on the NRAM Government loan to Bank Base Rate ("BBR") +1% from BBR +0.25% effective from 4 May 2012. The decision to increase the rate reflects the strengthening of NRAM's liquidity and capital positions since nationalisation which are now more able to withstand the increased rate. It is estimated that the 0.75% higher rate will increase interest payable from NRAM to HM Treasury by £95m in 2012. The interest rate on the B&B WCF was increased on 1 August 2011 to BBR +5% from BBR +1.5% and will have an estimated full year impact of £268m in 2012.


1. Optimising the Balance Sheet

The Balance Sheet has reduced to £89.6bn in the last six months, a decrease of £5.6bn. UKAR has repaid £788m of Government funding in the first half of this year (H1 2011: £1,008m, FY 2011: £2,150m). A further £3.2bn of other external wholesale funding has been repaid. These repayments have been funded largely from a 4% reduction in lending balances (£3.1bn since 31 December 2011). As a result, lending balances stand at £72.2bn at 30 June 2012 (H1 2011: £79.7bn, FY 2011: £75.3bn).

Other cash flows were generated for the Government in the first half of the year in the form of guarantee fees, interest and taxes, totalling £0.4bn (H1 2011: £0.4bn, FY 2011: £0.7bn). The Board considers the total of all these cash flows paid to HM Treasury to be an important measure of UKAR meeting its objectives in terms of maximising taxpayer value.

Events since 30 June 2012

In July 2012, after the close of the interim financial period and therefore not included in the June Balance Sheet, UKAR completed the purchase of £532m of Granite, Whinstone and Aire Valley notes at a discount to their nominal value, realising a profit of £143m.

The sale of £465m of NRAM mortgages, at par, secured on residential property assets to Virgin Money was also announced in July. The sale proceeds will be used to repay a further element of the NRAM Government loan.

2. Excellence in customer and debt management

The number of accounts in arrears for both B&B and NRAM are lower than the 2011 year end as a direct consequence of proactive arrears management coupled with the continued benign interest rate environment in 2012.

The total number of mortgage cases three or more months in arrears, including those in possession, reduced by 9% since the end of 2011 to 30,222 cases as at 30 June 2012 (H1 2011: 37,966, FY 2011: 33,216). The total amount of arrears owed by residential customers has fallen by £18.8m to £215.1m during the six months to 30 June 2012, a reduction of 8%.

We have continued to invest in our technology and staff resources in the UKAR debt management functions delivering considerable improvements in our operational effectiveness.

Support for customers experiencing payment difficulties

UKAR has a total of around 655,000 customers: they have 612,000 mortgage accounts and 249,000 unsecured personal loan accounts. The majority, 90%, of these mortgage loans continue to perform well but we do have a significant number of customers who are finding it difficult to meet their repayments and we work closely with them to offer a range of solutions to help them manage their circumstances. During the first half of 2012 we made 34,000 mortgage arrangements and account modifications to assist customers with their repayments.

In seeking to support customers through periods of financial difficulty, we actively work with a range of non fee-charging debt advice agencies to help customers reorganise their finances and have made 2,437 referrals in the first half year.

In some circumstances, however, the most appropriate course of action is for customers to sell their homes and we support this process, where suitable, through assisted voluntary sales.

Repossession proceedings for customers in arrears are always viewed as a last resort but regrettably, in some situations, this is inevitable. During the first half, the number of properties taken into possession reduced by 15% to 3,871 (H1 2011: 4,567). The stock of properties in possession decreased from 2,705 at 31 December 2011 to 2,475 (H1 2011: 3,075).

Where a buy-to-let landlord is in arrears we endeavour to protect tenants by honouring the terms of all valid Assured Shorthold Tenancy agreements and instructing a Law of Property Act receiver to collect rent directly from the tenant, thereby enabling the tenant to stay in the property for the duration of any agreement.

3. Maximise cost effectiveness

The Group has continued to focus on operational effectiveness and reducing costs.

Ongoing administrative expenses were slightly higher at £107.8m (H1 2011: £106.3m, FY 2011: £220.6m) reflecting the continued investment in operational teams which directly support customers, both in mortgage servicing and debt collection. In addition, IT costs are higher following a period of parallel running as capability has been built to support the NRAM business. This has included the successful migration of c 350,000 NRAM customer mortgage accounts onto the existing B&B mortgage platform. The shared system will contribute to reduced costs and provide a more stable and efficient business infrastructure from which to serve our customers. We expect these benefits to start to be realised in the next twelve months.

UKAR sold its Gosforth site to Virgin Money on 22 June, as part of its phased withdrawal from the site that will complete in 2013. This reduces and simplifies the number of properties under UKAR management as we focus on our two main sites in Crossflatts in Yorkshire and Doxford in the North East.

The proactive customer contact programme for all unsecured loan Payment Protection Insurance ("PPI") sales made by NRAM from 2005 onwards is nearing completion. Around 150,000 customers who were sold PPI during this period have been contacted and, where appropriate, compensation offered.

On mortgage PPI, there has been an increase in the level of claims which has been largely driven by the activity of claims management companies. A high proportion of these complaints relate to customers who do not have a PPI policy, however, the number of genuine claims has also increased.

Due to the general higher level of claims, we have increased the overall provision for PPI within NRAM by £65m.


The outlook for UKAR remains positive based on the progress made in combining the system infrastructures and the continued strong arrears performance. However, the UK economy continues to face uncertainty and the rising cost of living, in addition to continued house price deflation are placing pressure on household finances. We expect these factors may lead to more of our customers experiencing difficulties in meeting their mortgage payments and we are planning to increase our programme of proactive contact to help those customers who may be at risk.


Bradford & Bingley plc

  • Repaid a further £700m in Government loans, reducing the total amount owed to the Government down to £26.2bn.
  • Paid £251m to Government in the form of interest, fees and corporation tax.
  • Mortgage accounts three or more months in arrears fell by 19% to 7,064 (H1 2011: 10,956, FY 2011: 8,767) from the year end.
  • Underlying profit before tax reduced to £66.3m from £200.2m in H1 2011, after incorporating an additional £141m interest payable to the Government.
  • Statutory profit before tax of £45.7m, compared with £202.5m profit in H1 2011.

Northern Rock (Asset Management) plc

  • Repaid a further £88m in Government loans, reducing the total amount owed to the Government down to £19.6bn.
  • Paid £140m to Government in the form of interest, fees and corporation tax.
  • Mortgage accounts three or more months in arrears fell by 5% to 23,158 (H1 2011: 27,010, FY 2011: 24,449) from the year end.
  • Underlying profit before tax of £415.1m, compared with £391.6m profit in H1 2011.
  • Statutory profit before tax of £305.3m, compared with £339.0m profit in H1 2011.


Media Contacts:


Jonathan Glass / Nick Cosgrove
Tel: +44 20 7404 5959

Investor Relations Contacts:

Neil Vanham
Tel: +44 1274 806341


UK Asset Resolution Limited

UKAR was established on 1 October 2010 to facilitate the orderly management of the closed mortgage books of both B&B and NRAM to maximise value for taxpayers. The Executive team of UKAR manages both organisations focusing on this common objective, while ensuring that both companies continue to treat customers fairly, deliver consistently high levels of service and support those customers facing financial difficulty.


Bradford & Bingley plc

On 29 September 2008, all of B&B’s retail branches and its savings accounts were transferred to Abbey. These were rebranded Santander in January 2010. The remainder of the business, including the mortgage books of B&B and specialist lending arm Mortgage Express, were nationalised and taken into public ownership by the Government. B&B is permanently closed to new lending, but continues to provide services to some 209,000 existing mortgage borrowers, with 289,000 mortgage accounts.

Northern Rock (Asset Management) plc

Northern Rock was nationalised and taken into Government ownership in February 2008 and was then restructured into two legal entities with effect from 1 January 2010 - Northern Rock plc and Northern Rock (Asset Management) plc.

NRAM retained the majority of the pre-existing mortgage book and all pre-existing unsecured loan accounts. NRAM is permanently closed to new lending, but continues to provide services to some 446,000 existing borrowers, with 323,000 mortgage accounts and 249,000 unsecured loan accounts.

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