Northern Rock 'makes £500m losses'

Bosses, who are also expected to reveal its £24 billion loan from the Bank of England had been slashed by £5 billion, will blame the latest slump on losses incurred as a result of struggling mortgage holders, according to BBC reports.

Executive chairman Ron Sandler refused to comment on the speculation before the stock market announcement.

Northern Rock has already announced it is to make around 1,300 redundancies as part of its efforts to shrink the business - a move that will also incur costs.

The job cuts relate to previously-announced plans by the Newcastle-based business to cut 2,000 staff by 2011.

Mr Sandler has promised to repay the Bank of England's loan by the end of 2010.

The recovery strategy includes the bank halving its balance sheet to £50 billion by the end of 2011 by stopping all business lending and speeding up mortgage redemptions for existing customers.

Earlier this year Mr Sandler warned of "significant losses" for the lender in 2008 as the credit market turmoil continued.

He also revealed more of the bank's customers were finding it more difficult to make mortgage repayments.

At the end of last year, 0.57% of the mortgage book was three months or more in arrears, but by the end of April that had risen to 0.95%.