Crisis was not our fault: Rock bosses
NORTHERN Rock’s embattled bosses have denied there was anything more they could have done to prevent the crisis that led to the first bank run in nearly 150 years.
Chief executive Adam Applegarth and chairman Dr Matt Ridley told MPs at a hard-hitting Treasury Select Committee hearing they were victims of an “unforeseen” meltdown in credit markets.
Exasperated MPs on the cross-party committee accused the bank’s board of failing to heed early warning signs and tarnishing the UK banking sector’s reputation.
In a scathing attack on Dr Ridley and his role in the crisis, Tory MP Michael Fallon said: “You are the chairman of the bank that ran out of money, that caused the first bank run in this country for 150 years. You have had to borrow billions of public money from the Bank of England and have damaged the good name of British banking. Why are you still clinging to office?”
The grilling into what went wrong at the Newcastle-based mortgage lender came a month after Northern Rock was forced to turn to the Bank of England as lender of last resort.
It was also the first time the Northern Rock management had faced a public quizzing since the bank was engulfed in the funding crisis.
The subsequent run on the bank, which led to an estimated £2bn being withdrawn by panicked savers, was only eased after the Government stepped in to guarantee deposits held by the group.
MPs rounded on the bank’s chief executive and chairman over their reliance on money markets, which the lender uses for about 75% of its funding.
Money markets have virtually dried up over the past two months, sparked by soaring default rates on high-risk mortgages in the US.
Northern Rock also came under fire for what MPs claimed were aggressive lending tactics.
Mr Applegarth said the bank had already moved to diversify its funding lines, offload higher-risk loans held on its books and adopt a slower-growth lending model.
“We failed to foresee the global close down in markets, but I don’t know anyone who foresaw the freeze,” he added.
However, Northern Rock lay much of the blame for the bank run on the leaking of news that it had called on the Bank of England for emergency funding.
MPs heard how Mr Applegarth and Dr Ridley, alongside the entire board, offered to resign as the crisis escalated.
Northern Rock’s senior independent director Sir Ian Gibson said shareholders, brokers and colleagues had been consulted and had felt it was best for them to stay in place and steer the group through the crisis.
The future of the Northern Rock now hangs in the balance, with a firm takeover offer still yet to appear.
The group has been forced to turn to the Bank of England for £13bn so far in emergency funding - a figure confirmed by Northern Rock for the first time yesterday.
Dr Ridley said it had arranged for the facility to remain open until February, adding the bank may need to call on the funding for more cash.
