Northern Rock bosses face questioning

Source: Stock Market Digital

Date :16/10/2007 08:58:51

Bosses at Northern Rock are preparing to publicly answer MPs regarding the recent crisis which has engulfed the mortgage lender.

Chief executive Adam Applegarth and chairman Matt Ridley will be quizzed by the Treasury Select Committee regarding their handling of the bank's business which forced the group to turn to the Bank of England to remain solvent, resulting in the first run on a British bank for 150 years.

Dependence

MPs are expected to concentrate on the bank's reliance on short-term money raised in wholesale markets to balance its books against longer term mortgage loans. Some 75% of Northern Rock's money came from these markets.

The Newcastle-based bank was forced to seek emergency funding from the Bank in September after it was hit with soaring borrowing costs amid tightening global credit conditions.

Uncertainties following the collapse of the US sub-prime mortgage market had seen banks increasingly reluctant to lend to each other - shoring up the cost of short term interbank loans.

The resulting run on the Northern Rock, as customers rushed to withdraw savings amid fears the bank was close to collapse, only eased after the government moved to guarantee all deposits held by the group.

Critics have since launched attacks on the Bank of England, the Financial Services Authority, the Treasury and Northern Rock's management for not foreseeing the crisis and for their subsequent handling of the situation.

Mr Applegarth, who received praise earlier in the year for Northern Rock's strong growth, has largely been credited with orchestrating the strategy to rely on short-term money markets.

Unpredictable

But he is now expected to be questioned on why he failed to insure against the risk of liquidity drying up, although he has argued that no-one could have predicted the seizing up liquidity seen this summer.

Mr Applegarth, who last year took home more than £1.3 million in salary and bonuses, is now facing calls to step down from his position at the lender.

October 16, 2007

Related Links

Northern Rock