Now chase the real Northern Rock villains
In the United States the miscreant Northern Rock executives would gave received jail sentences longer than their life expectancy. In China they might have been executed. But even a £500,000 fine is exceptional in Britain, which is only just taking financial collapse seriously.
The mortgage bank’s deputy chief executive and credit manager hid the number of loans in arrears from their chief executive, risk committee, shareholders and regulators in the months before it had to be rescued. They have now been fined by the regulator and banned from working in finance again.
Yet while the apparent quality of Northern Rock’s loanbook was a surprise, it was not the mis-statement about arrears that brought down the bank. It was the reliance on wholesale funding, especially short-term finance, that could not be maintained when credit markets closed in mid-2007. The Rock could have survived even the true level of arrears.
And while two executives have been punished for providing misleading figures, there is no punishment yet for mismanaging the bank so disastrously.
Britain has a poor history of punishing managers for financial failure. While the bosses of Enron and WorldCom in America received prison sentences of 25 years or more, there was not even an inquiry into how Marconi was turned from a £35bn company into nothing.
Northern Rock was the first domino to fall in the global banking crisis but it was later dwarfed by HBoS and Royal Bank of Scotland in this country and Lehman and others abroad. Now that the FSA has drawn blood from the Rock, can we expect to see punishments at RBS and HBoS?
The Rock fines were the result of civil rather than criminal procedures – saving the regulator the risk of its case collapsing as well as the cost. And for all the debate about cultures, the two individuals were veterans of the bank’s days as a building society.
But surely the real villains at Northern Rock were those who authorised a mortgage product lending more than five-times borrowers’ incomes and 125 per cent of the property value, and who raised 70 per cent of the bank’s funds from wholesale markets. That policy was not hidden however: it was fully known to the regulators and shareholders. Will we see fines for those really responsible for the collapse?
