Lib Dems call for legal action against Northern Rock

02 June 2008 / by Rachael Stiles
Liberal Democrat Treasury spokesman, Vince Cable, has said that the Government should take legal action against the former directors of Northern Rock for misleading taxpayers.

With fellow Liberal Democrat Lord Oakshott, Mr Cable has accused the directors of the nationalised bank of using unconventional accounting practices, and not considering mortgage customers to be in arrears until they were at least three months behind on their payments.

This method skewed the figures, he said, contradicting ex-chief executive Adam Applegarth's claims that the quality of Northern Rock's mortgage book was higher than the industry average, and misled the Treasury – and consequently the taxpayer – into lending the bank money based upon figures which depicted an inaccurate view of the company's financial health.

Subsequently, the level of arrears that Northern Rock's mortgage book holds has doubled in the first four months of 2008, reflecting a more realistic image of the bank's precarious position, though new executive chairman, Ron Sandler, has defended the results, saying that the level will come nearer to the average once new policies are in place.

To reflect the fact that it is dealing with twice as many cases of mortgage arrears as last year, Northern Rock will double its debt management team from 176 to 444 during the next 12 months, before trimming it back down again by 2011 in line with its business plan, which will see its entire work force cut by a third.

According to a memo released to the BBC, contact centre staff, responsible for selling mortgages, will be cut dramatically, but staff in the savings department will not suffer job cuts as the bank tries to build up its savings deposits and cut back on mortgage lending until it has repaid its loan to the Bank of England.

It was a heavy reliance upon the money markets and mortgage lending, rather than on its own deposits, that caused it to run into trouble last year when the US sub prime mortgage market crashed, freezing the markets, leading to it having to borrow almost £30billion of taxpayers' money and then being nationalised.

There is still £26.9billion of the loan outstanding, which Mr Sandler has said will be repaid by the end of 2010, £7billion of which it will be able to pay back by the end of this year.

© Fair Investment Company Ltd