British government-owned bank Northern Rock said it made a £585 million loss in the first half of this year as bad debts on home loans more than doubled and it was hit by restructuring and other costs.
The government also committed to strengthen Northern Rock's capital base by converting £400 million of Treasury preference shares into ordinary shares and swapping up to £3 billion of outstanding debt into equity following the transfer of a Bank of England loan to the Treasury.
The bank, which was taken under state control in February after failing to find a suitable buyer after a funding crisis, cut the amount it had borrowed from the Bank of England by £9.4 billion in the first half to £17.5 billion, ahead of its plan.
Under the bank's business plan unveiled after the government took control it had expected to be loss-making this year and not return to a profit until 2011. It planned to repay the government loan by the end of 2010.
The share of mortgages more than three months in arrears more than doubled during the first-half to 1.18 per cent, due to the lender tightening its arrears policy and the deteriorating housing market.