No legal action against bosses over Northern Rock collapse

Nationalised lender Northern Rock said today that no legal action would be taken against former directors at the centre of the group’s collapse last year.

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

Northern Rock also said it was “well ahead” of its British government loan repayment target, having paid back more than half the £26bn (€33.38bn) owed to leave £11.4bn (€14.63bn) outstanding as at September 30.

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% 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 (€19.76bn) during the nine months to September 30.

But the group’s mortgage arrears figure jumped by nearly 60% 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% at September 30, up from 1.18% 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% of the property’s value.

Chairman Ron Sandler has warned that the bank, which racked up a near £600m (€770m) first-half loss to June 30, 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 (€975,000) pay-off.