Shareholders and FSA suffering at the hands of Northern Rock

20 March 2008 / by Rachael Stiles
The first senior figure has left the Financial Services Authority in the wake of its hand in Northern Rock's downfall, and the bank's abandoned shareholders are claiming an abuse of their human rights has been committed.

Northern Rock's chairman and chief executive both quit their jobs shortly after the bank hit a liquidity crisis last year, but Clive Briault – retail chief at the FSA – is the first senior figure at the tri-partite authorities (the Treasury, the Bank of England and the FSA) to lose their job as a result of the regulator's failure to anticipate or prevent the problems incurred by Northern Rock.

The FSA has admitted that it did not act quickly enough to prevent the bank's heavy reliance on the wholesale money markets for its funding, rather than on deposits, which led to the first run on a British bank for more than 100 years. Last month the FSA announced the departure of five of the seven supervisors who worked closely with Northern Rock.

Mr Briault has been at the FSA since its inception; he is said to be leaving by mutual agreement, however, and will not leave empty handed, but with a £400,000 payoff and a pension pot worth more than £870,000.

The news of his departure comes just a week before the FSA will release a report on Northern Rock, which is expected to outline areas in which it can improve its supervision of banks to prevent a repeat of the fiasco.

Meanwhile, Tory member of the Treasury Select Committee, Michael Fallon, has accused the Chancellor Alistair Darling of dithering for months after the Northern Rock crisis broke before acting to save the bank, when the American bank Bear Stearns was rescued in a weekend when it suffered a 40 per cent drop in its share price.

Mr Darling argued that at the same point in the Northern Rock crisis, the shares were still viable, compared to Bear Stearns' comparatively worthless ones when it was bought by JP Morgan last week, so the same treatment for Northern Rock would have run into considerable opposition, and that the offer from Lloyds TSB to buy Northern Rock last summer was not a formal or realistic one.

The Chancellor is already facing criticism for leaving the bank's shareholders empty handed, rendering the shares almost worthless at about 5p by taking it into nationalisation. The bank's shareholders believe that nationalisation was an unnecessary measure because Northern Rock was still a viable business, and they are taking the Government to court, accusing it of abusing their human rights by taking the bank into public ownership.

© Fair Investment Company Ltd