N.Rock takes $574 million credit market hit, names CEO

LONDON (Reuters) - Northern Rock has taken a 281 million pound ($574 million) hit to profit from its exposure to the credit crisis, the bank said on Thursday, adding to its woes as it named a new chief executive.

The bank's volatile shares were down 15.3 percent at 84 pence at 10:50 a.m., valuing the company at just 354 million pounds.

In a long-awaited update for investors, the battered lender said Andy Kuipers, a director who stood down from the board last month, would replace veteran Adam Applegarth, who leaves the company on Thursday.

Applegarth announced last month he would step down but had not been expected to leave until next year.

Northern Rock NRK.L, which was worth over 5 billion pounds earlier in the year, is being auctioned off after it became Britain's highest profile casualty of the credit crisis, but the process has been thrown into doubt in recent weeks, with at least two suitors withdrawing.

On Thursday, the bank faced the prospect of being left with only one bidder -- its preferred suitor Virgin Group VA.UL -- after investment group Olivant said it had been rebuffed by the bank and indicated it was preparing to withdraw.

It called for the timetable to speed up and to be given access to the financing banks involved, a source close to the matter said.

Olivant's proposal is backed by several leading Northern Rock shareholders, including hedge funds RAB Capital and SRM Capital, who together own more than 15 percent in the lender.

Traders said the prospect of a single bidder and news of the hit from collateralized debt obligations (CDO) and other structured debt investments had weighed on Northern Rock shares.

CREDIT CRUNCH

Northern Rock said the 281 million pound writedown included a 118 million pound hit from structured investment vehicles (SIVs) and a further 32 million pounds from its investment in the more highly leveraged SIV-lites.

That compares with analysts' forecast for 2007 profit before tax and exceptional items of 467 million pounds, according to Reuters Estimates. The bank gave no update on its current trading but said it had not changed its September forecast of an underlying 2007 profit before tax -- excluding exceptionals and writedowns -- of 500 million to 540 million pounds.

"We still have such little clarity on where profit before tax was traveling pre these hits. However, it is fair to say that the impact is significant, whatever the profits were likely to be," analysts at Keefe, Bruyette & Woods said in a note.

In an update on the rescue process underway since its September near-collapse, Northern Rock said it remained in "accelerated" discussions with a consortium led by Virgin Group and was "engaged" with parties including Olivant.

It also confirmed it expects to complete its strategic review by February.

Olivant is pressing for a decision before Christmas. Its proposal would keep Northern Rock as a going concern rather than entail a sale or break-up.

The investment group is expected to demand a response from Northern Rock by a deadline as early as Thursday evening after talks with the bank, or it will withdraw from the process.

Northern Rock was engulfed in a funding crisis in September and up to last week was forced to borrow 25 billion pounds ($51 billion) from the Bank of England. Data from the BoE on Thursday indicated borrowing in this past week had been minimal.

Northern Rock's departing chief executive Applegarth will receive up to 380,000 pounds when he leaves, a person familiar with the matter said last month.

Kuipers was appointed to the board in January 2005 and is responsible for the co-ordination and direction of sales, marketing, products, pricing and retention activities.

He owns 174,000 shares in the bank, now worth 165,000 pounds, down from around 1.9 million in May.

(Editing by Will Waterman)