Profits set to fall short of industry forecasts at NR

Northern Rock has revealed its full-year profit is set to fall short of market expectations.

As rising forward interest rates take their toll on lending income, Northern Rock has admitted its 2007 underlying attributable profit for 2007 is set to rise about 15%, compared with the 17% increase pencilled in by analysts.

The forecasts had predicted that the bank would see average profits of £430m, but Northern Rock says profits will be nearer £422m.

Shareholders have reacted badly to the bank’s figures – Northern Rock’s share price has plummeted by nearly £1, from a high of 1026p on June 11 to 947.5p this morning.

The bank also said it planned to buy back shares using capital freed up by the sale of parts of its loan book, and flagged up an increase in its dividend payout ratio following the introduction of the new Basle II capital requirements regime.

However, the lender says it market share of the gross mortgage market in the first five months of 2007 is 10%, up from the 8.3% share it achieved for the full year 2006.

It also reports its net market share of residential mortgage lending during the first five months of 2007 is around 19% up from 13.4% in 2006.

Adam J Applegarth, chief executive of NR, says: “The UK mortgage market remains robust and we are continuing to trade strongly, despite an adverse interest rate environment.”

He adds: “We will continue to concentrate on adding high volumes of prime quality residential mortgages to our balance sheet.

“In addition, looking forward we will add revenue from the growing programme of manufacture, distribution and disposal of assets that we do not want to hold on the balance sheet in the long term.

“This will help us to continue to drive up the company’s earnings while managing our capital more efficiently.”