Tories call for bank assurances

Tories call for bank assurances

The Conservatives are demanding government assurances that taxpayers' interests are being safeguarded over Northern Rock bank.
Their calls come after the bank's chief executive, Adam Applegarth, resigned.

The bank's shares collapsed after it was forced to seek emergency funding from the Bank of England in September.

Two suitors, Virgin Group and investment firm Olivant Advisers, confirmed they had made proposals to rescue the bank by a Friday deadline.

The shadow chancellor, George Osborne, said the departure at the bank had added to confusion surrounding the mortgage lender.

It has been shored up with Bank Of England loans totalling £24bn.

He said the resignation of Mr Applegarth was not enough to reassure taxpayers.

Take-over 'imminent'

"The confusion and indecision surrounding the handling of Northern Rock grows and grows," he said.

US private equity firms JC Flowers and Cerberus are among other firms expected to come forward with offers for the beleaguered Newcastle-based bank, which is responsible for about one in five mortgages in the UK.

Northern Rock said that David Baker, Keith Currie and Andy Kuipers were standing down as board directors but would stay with the firm.

At the same time, four non-executive directors, Sir Derek Wanless, Nichola Pease, Adam Fenwick and Rosemary Radcliffe, were stepping down immediately, it added.

Will Hutton, of the Work Foundation, said the resignations meant a takeover was imminent.

"It's no surprise, and they were there to steward Northern Rock through, and their resignation obviously signals that actually that period is over, and that puts a lot of heat on the authorities.

"It means that actually there's going to be a deal announced before Monday, because if not, on Monday morning, Northern Rock will be an institution without a board."

Banking run

Northern Rock has been in trouble since getting caught up in the global credit crunch over the summer, which left it unable to borrow money from other banks to fund its business model.

Concerned customers rushed to withdraw their money, and the bank has since been seeking bidders to rescue it.

The problem facing Northern Rock was that three-quarters of its funding came from wholesale money markets, and when the global credit crunch took hold, its main source of financing dried up.

Northern Rock said Mr Applegarth would step down from his post once he had helped the lender complete the second phase of its strategic review, scheduled for completion no later than the end of January 2008.

Future plans

Analysts said there were a number of options for the bank going forward, ranging from an outright buy-out to a breaking up of the bank's assets.

A consortium led by Richard Branson's Virgin Group on Friday submitted a formal proposal to rescue Northern Rock.

Olivant, a team led by veteran troubleshooter and former Abbey National boss Luqman Arnold, said it had made a detailed proposal to stabilise the bank as a viable business and restore its finances.

JC Flowers has put together a high-profile management team to make their case for taking over the bank, while rival private equity firm Cerberus has also been rumoured to have been scouring Northern Rock's books.

But because any future owner would have to pay back about £24bn of Bank of England loans, analysts said bids were likely to be low.