Northern Rock CEO faces grilling on strategy

Northern Rock’s bosses face their toughest grilling since the British bank was engulfed in a funding crisis a month ago when lawmakers quiz them on Tuesday on their strategy and assessment of risk.

Northern Rock CEO Adam Applegarth and chairperson Matt Ridley face a Treasury Committee panel that last month accused the Bank of England of being asleep at the wheel during the crisis. The panel is expected to take an even tougher line on the risk taken on by executives.

The Bank of England stepped in to offer Northern Rock emergency funding on September 14, sparking panic among customers and the first run on a major UK bank for over 140 years, which only ended when the government stepped in to guarantee savings.

Critics have rounded on the Bank of England, the Financial Services Authority, the Treasury and the bank’s management for not foreseeing the crisis and their handling of it.

Applegarth (45) was the architect of the Newcastle-based lender’s strategy to rely on wholesale markets for three-quarters of its funding and lend aggressively in a booming housing market.

CEO since 2001, he was lauded when growth was strong, but the model was shown up as too reliant on money markets when liquidity seized up this summer and funds were not available. Applegarth said no one could have predicted the sudden change.

The Treasury panel, headed by Labour MP John McFall, will want answers on whether the bank was too aggressive.

Under Applegarth, the bank grabbed mortgage market share from its big-name rivals, although it did not take on risky loans.
He wanted to be one of the top three mortgage providers within five years, from fifth now, and was the biggest lender in the first half of this year, providing nearly one in five home loans.

But warning signs were emerging. On June 27 the bank said profits would miss expectations due to a rise in funding costs. That raised concern about management credibility, but Applegarth said a month later the bank continued to lend aggressively.

Applegarth has spent his career at Northern Rock. He joined as a trainee in 1983 after graduating from Durham University.

The sports enthusiast quickly moved through the ranks, becoming one of the youngest people to head a FTSE 100 company when he took the helm in 2001, aged 39.

Ridley, chairperson since April 2004 and on the board for 13 years, was criticised for his low profile as the crisis grew.

He is best known as a zoologist and science writer, authoring books including Genome: The Autobiography of a Species in 23 Chapters. His father, Viscount Ridley, was Northern Rock’s chairperson between 1987 and 1992 when it was a building society.

Matt Ridley (49) has backed Applegarth to steer the bank through the problems, but industry sources and analysts say the CEO is unlikely to be at the helm for much longer, especially with predators circling.

The bank has received approaches from several parties, but it said on Monday all talks were preliminary. A consortium led by the Virgin Group has made a rescue proposal, and two United States buyout firms are also interested, sources familiar with the matter have said.—Reuters

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