Rock risks 'were not foreseeable'

http://news.bbc.co.uk/go/rss/-/1/hi/business/7046712.stm

Version 0 of 1.

Top executives of the Northern Rock bank have denied doing anything wrong in the run up to the bank's recent near-collapse.

The bank's chief executive Adam Applegarth told MPs that nothing could have been done to reduce the risks the bank was facing.

He told the Treasury Select Committee that the bank had planned how it would cope with a 40% fall in house prices.

But it had not planned how to respond if its ability to borrow dried up.

"What wasn't stress-tested was the event deemed implausible - of the global markets freezing up overnight," he said.

"The rapid and long-lasting closure of the global markets was not stress-tested," he added.

Asked if he could have taken any action to mitigate the risk of the Northern Rock's business model, he replied, "No."

Business model

Four senior executives of the Northern Rock are being questioned by members of the committee following the bank's recent near-collapse.

The Northern Rock chairman, Matt Ridley, said it had been hit by "wholly unexpected" events and he defended the way he and his colleagues had been running the bank.

"The Northern Rock business model was a good one - [but] that proved unable to cope with an unexpected seizure of the money markets in August," he explained.

"We were subject to a completely unprecedented and unpredictable closure of the world credit markets," he added.

Mr Ridley defended the bank's policy of borrowing large sums of money on the financial markets to lend as mortgages to house buyers, and denied an earlier suggestion from the head of the Financial Services Authority that the bank was running an "extreme business model".

Most of the borrowing was long-term - "longer than the average life of mortgages on our books," said Mr Ridley.

But Mr Ridley said he would resign if other directors asked him to do so.

Assessing options

Northern Rock's bid for emergency funding resulted in a run on the bank, with thousands of savers queuing to withdraw money totalling more than £2bn - or 8% of the amount of deposits it held.

In terms of the probability of this organisation getting into difficulty, we had it as a low probability Hector SantsFinancial Services Authority <a class="" href="/1/hi/business/7007076.stm">Northern Rock timeline</a> <a class="" href="/1/hi/business/7035435.stm">FSA boss faces MPs</a> <a class="" href="/1/hi/business/7004001.stm">King defends bank role</a>

"What severely hammered us was the retail run," said Mr Applegarth.

As a result of the images of panicking customers outside branches, the Northern Rock brand has been irredeemably damaged.

The bank, whose market value has plunged by more than 60% since the start of the crisis, is now assessing options including a sale, a break-up and closing to new business.

On Monday, it said it was continuing talks with a number of "potentially interested" suitors, but that discussions were at a very early stage.

Its statement came after a consortium led by Sir Richard Branson's Virgin Group put forward plans to take control of the bank.