No legal action against Northern Rock bosses

Author: PA

Management said a review by lawyers and accountants into the previous regime,
headed up by chief executive Adam Applegarth, had found “insufficient
grounds to to proceed with any legal action for negligence”.

Northern Rock also said it was “well ahead” of its Government loan repayment
target, having paid back more than half the £26bn owed to leave £11.4bn
outstanding as at 30 September.

Before running into funding problems last summer, Northern Rock was one of the
UK’s biggest and most aggressive mortgage providers, advancing loans worth
as much as 125 per cent of home values.

It was forced to turn to the Bank of England for emergency support after the
money markets froze, leaving the group facing a funding crisis.

Northern Rock’s nationalisation in February led to 1,500 job losses as it
scaled back activity to pay back the Government.

The lender has been reducing the size of its mortgage book in order to pay
back its Government borrowing, and repaid £15.4bn during the nine months to
30 September.

But the group’s mortgage arrears figure jumped by nearly 60 per cent during
the last three months, reflecting the fact that it has been left with poorer
quality loans.

The percentage of its estimated 600,000 mortgage accounts more than three
months in arrears was 1.87 per cent at 30 September, up from 1.18 per cent
at the end of June.

Northern Rock also saw the number of properties in its possession jump 491
during the period to 4,201. Most of the repossessions were for properties
secured with a “Together” mortgage, which allowed buyers to borrow up to 125
per cent of the property’s value.

Chairman Ron Sandler has warned that the bank, which racked up a near £600m
first-half loss to 30 June, would be “significantly” loss-making this year.

He said he was pleased with the bank’s progress, but warned that the recent
market turmoil made maintaining the pace “significantly” more challenging.

Mr Sandler said: “I am pleased with the progress Northern Rock is making. We
have continued to repay the Government loan well ahead of plan.

“However, dislocated financial markets and falling house prices mean that the
pace of progress achieved to date will be significantly more challenging to
maintain going forward.”

In its third quarter update today, Northern Rock said: “A review of the
conduct of the previous board in respect of funding and liquidity has been
undertaken with the assistance of external advisers, (lawyers) Freshfields
and (accountants) KPMG Forensic.

“The board has concluded that there are insufficient grounds to proceed with
any legal action for negligence against the former directors, and has no
intention of bringing any such action.

“The board has also completed a similar review in respect of the company’s
auditors and has determined that no action is warranted.”

Mr Applegarth stood down as chief executive last December, securing a £760,000
pay-off.

Mr Sandler has previously said the lender was aiming to pay back the
Government loan by the end of 2010.

The lender’s recovery strategy involved halving the balance sheet to £50bn by
the end of 2011 by stopping all business lending and accelerating mortgage
redemptions for existing customers.

Northern Rock said it had attracted £3bn of new retail deposits during the
third quarter, taking the total to £17.2bn.

Under the bank’s competition framework to ensure it does not unfairly benefit
from Government backing, Northern Rock has to avoid selling “market-leading”
products and limit its market share of UK retail deposits to 1.5 per cent.

“No breach of the framework has occurred since its introduction,” Northern
Rock said.

The lender said it advanced £2.4bn of mortgage lending during the nine months
to 30 September, with an average loan-to-value of 60 per cent in the third
quarter.

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