Northern Rock chiefs offered to stand down, MPs are told
The chairman and chief executive of Northern Rock offered to quit the stricken mortgage lender after it came close to collapsing, MPs were told yesterday.
The whole board said in Aug-ust that they would resign if it was in the interests of the bank, and later, as savers fled the bank, Matt Ridley, the chairman, and Adam Applegarth, chief executive, said again that they would be willing to quit, Sir Ian Gibson, Northern Rock's senior non-executive director, told the House of Commons Treasury Committee.
Sir Ian said he had consulted the bank's brokers and investors who had said Mr Ridley and Mr Applegarth should stay on. Sir Ian said he was told: "You can worry about that later. What you need to do right now is [direct] the bank through a crisis."
Northern Rock directors were up before the committee to explain how the mortgage lender became the first British retail bank to suffer a run on deposits since the 19th century. MPs accused Northern Rock of lending too aggressively and neglecting risk management.
But Mr Ridley and Mr Applegarth said no one could have foreseen the global shutdown of credit markets that happened on 9 August. Mr Applegarth said the bank went to the Bank of England for "a backstop" that it did not intend to use but which it was forced to draw on after the announcement of the lending line caused mass withdrawals.
John McFall, the committee's chairman, accused Sir Derek Wanless, the former NatWest banker who chaired the board's risk committee, of not doing his job. "You were the only bank to go cap in hand to the Bank of England... This is unreal," Mr McFall said. Sir Derek said Northern Rock had withstood wholesale market freezes before, including after the 9/11 attacks, but that the August shutdown was unprecedented.
"You sound like frightfully reasonable chaps who are the victims of a ghastly scenario," Liberal Democrat MP John Thurso mockingly told the directors. Mr Applegarth revealed that Northern Rock had been planning to announce the funding agreement on Monday 17 September but a leak forced it to go public the Friday before. He said the extra time might have helped it to prevent the panic that ensued. In particular, he said Northern Rock was going to add capacity to its website over the weekend that could have prevented fear spreading when people could not make online withdrawals.
MPs were looking for faults in the three-way arrangement on banking regulation between the Financial Services Authority, the Bank of England and the Treasury. Mr Applegarth said the run on the bank could have been avoided if general liquidity had been made available against a wider range of collateral early in the credit crunch, as it was by the European Central Bank.
He also said that Northern Rock's talks with a potential buyer – known to be Lloyds TSB – ended on 10 September because the Bank of England refused Lloyds a funding backstop. The central bank offered one after mass withdrawals started but "understandably in the middle of a retail run, it's harder to find a safe haven", he said.
Mr Ridley told the MPs that before 13 August, when Northern Rock alerted the FSA to its problems, it had received no warnings from its chief regulator. "We didn't take particular calls saying the markets are getting particularly difficult; we think the markets are going to dry up," Mr Ridley said.
The meeting exposed a split between Mr McFall and fellow Labour member Jim Cousins, MP for Newcastle Central. Mr Cousins accused the chairman of "grandstanding" by repeating criticisms made by rival bank chief executives about Northern Rock, which is based in Newcastle, without saying who they were.
Kitty Ussher, the Government's City minister, will say today that Britain will stick to its existing approach to regulation and will not introduce crude new rules to respond to the Northern Rock crisis.