The "Price Of Failure" At Northern Rock
It seems that the "price of failure" is not always a cost that the perpetrator of failure has to bear. As England crashed out of the Euro 2008 qualifiers earlier this week, Steve McLaren was sacked, but reportedly had the consolation of £2.5m to make the loss of his job more bearable. In a similar way, Northern Rock's outgoing chief executive Adam Applegarth looks set to receive a £380,000 pay-off. His contract says he's entitled to six months' salary, even if he chooses to leave the job.
"At most he will get the contractual minimum," was the claim of a company spokesman. "There will be no bonus, no special severance package, no pension top-up." Close sources said, however, there was 'virtually no chance' he would get any pay-off apart from this salary deal. Nevertheless he will walk away with a pension pot worth £2.2m. In 2006 Mr Applegarth, based at the Rock's headquarters in Gosforth, a leafy suburb of Newcastle, was paid a total package of £1.4m, including basic pay of £690,000 and a bonus of £660,000.
Mr Applegarth officially resigned on 16 November, but has agreed to stay on until the end of January as the company looks for a suitable buyer or investor. If that is secured sooner rather than later Mr Applegarth might leave earlier.
Northern Rock shares were as low as 78p on Friday morning as shareholders continue to flee. Financial institutions are still not willing to lend the bank any money, and its borrowing from the Bank of England continues to rise. A further £1.1bn was loaned in the last week alone, and the total lending is now close to £26bn.
Rock's loss has been other institutions' gain as savers continue to switch their accounts elsewhere. Nationwide attracted £1.8bn of customer savings in September, as it clearly benefited from disillusioned Rock customers. The figure had been only £460m in each of the previous five months. Nationwide chief executive Graham Beale said that the Government's handling of the disaster had damaged the entire financial community. "The film footage of queues outside Northern Rock transmitted throughout the world did not do the UK any good," he said. Richard Lambert, of the Confederation of British Industry, also warned that the fiasco was damaging the reputation of the City abroad.
Northern Rock is still looking at bids from interested parties and may come up with a shortlist by the end of the weekend.
A further blow to Rock's finances has appeared in the form of £53bn which is already owned by an offshore company. Based in Jersey, the trust owns 70% of the banks' mortgage portfolio which cannot be used as collateral for the bank. This hits the pool of cash the bank has to return the money borrowed from the taxpayer.
Chancellor Alistair Darling has always maintained that the bank’s loans from the Bank of England would be the first priority, but there is a rising feeling that mortgage-backed securities will actually be first in line. It leads to doubts that the taxpayers money is really safe.
Published on November 26, 2007
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