Select Committee on Treasury Minutes of Evidence


Examination of Witnesses (Questions 700 - 719)

TUESDAY 16 OCTOBER 2007

DR MATT RIDLEY, MR ADAM APPLEGARTH, SIR IAN GIBSON AND SIR DEREK WANLESS

  Q700  Peter Viggers: One of the aspects of this affair which has caused so much damage is the lack of a clear, informed market for quite a long period, from 9 August, when you first knew of the liquidity problems, through to 14 September, when you made your announcement. Obviously, the FSA and the Takeover Panel have some responsibility for ensuring that there is no false market, that there is an informed market, but the prime responsibility is yours, and there must have been many times during this turbulent period when you considered what public announcements you should make. Can you please talk us through the narrative of that?

  Dr Ridley: Certainly. You must remember that on 9 August it was not as if there was a sudden change in our profit forecast. This was the beginning of a squeeze that, if it lasted only a short number of days, would have no effect at all. As it went on and it became clear that there would be an impact on the profit forecast, we were keeping in very close contact with both the authorities that you mentioned and also our own legal and other advisers, broking advisers, about whether we needed to make an announcement. The other thing we had to take into account was that we were by then in talks with the potential safe havens that have been mentioned. So we simply took the best advice we could on when and where we needed to make announcements and we made exactly as many announcements as we were advised we had to make.

  Q701  Peter Viggers: Just for the record, can you remind us of the share price performance during this period?

  Dr Ridley: There was a sharp decline in the markets generally in the middle of August and some recovery after that.

  Q702  Peter Viggers: You took advice and made announcements when you were advised to make announcements?

  Dr Ridley: We were absolutely clear that we made every announcement that we needed to make when either we needed to announce a change of profits or we needed to announce discussions with other parties, and while the discussion of the facility with the Bank of England was going on, that was also a relevant factor that we were told we had to take into account.

  Q703  Peter Viggers: You maintained contact with the relevant authorities throughout?

  Dr Ridley: We maintained contact with the relevant authorities throughout.

  Q704  Chairman: Dr Ridley, did you think it was appropriate to offer a 14.2 pence dividend to shareholders, almost £60 million in total, whilst the bank was under Treasury protection?

  Dr Ridley: We kept the position of the interim dividend under continuous review from the time that we announced it at the end of July until we took the decision to not pay it. That was a decision that had to be a careful balance of judgement between on the one hand—

  Q705  Chairman: Your announcement was Tuesday 25 September but a couple of days before it you were still saying you were going to pay it out. There was a bit of a brouhaha in the press that day. What changed your mind about paying it out then?

  Dr Ridley: We were taking continuous advice and listening to all parties, including the FSA and others, and we were having to balance the judgement between, on the one hand, paying cash out of the business and, on the other hand, our obligations to shareholders.

  Q706  Chairman: Do you think it was appropriate to pay out £40 million to preference shareholders, even though you had cancelled the payment to ordinary shareholders?

  Dr Ridley: That is simply a mistake that was made in the press. It was not a dividend to preference shareholders; it was interest on a debt.

  Q707  Mr Dunne: Following up on that, what proportion of the shares of Northern Rock are held by the Board?

  Dr Ridley: I do not know the answer to that question.

  Q708  Mr Dunne: Approximately?

  Dr Ridley: Can we write to you on that?[7]


  Q709  Mr Dunne: Is it a significant proportion or it is an insignificant proportion?

  Dr Ridley: I should imagine it is a pretty insignificant portion.

  Q710  Mr Dunne: What proportion of the shares are held by employees?

  Dr Ridley: Seventy-five per cent. Sorry. It is the other way round.

  Sir Ian Gibson: We do not know.

  Q711  Mr Dunne: You do not know what proportion of your shares are held by your employees?

  Sir Ian Gibson: No. We know that 75% of employees hold shares. We will find out for you from the small share register—

  Q712  Mr Dunne: I am astonished to hear that no member of the Board knows the proportion of shares held by its staff, given the importance that you place on employee ownership in the company. You know 75% of your employees hold shares but you do not know how many shares they hold. Do you know how many shares are held by the foundation?

  Dr Ridley: The foundation does not own ordinary voting shares. What it owns is a stake that converts into 15% of the company on takeover.

  Q713  Mr Dunne: Does the foundation receive dividends on those interests?

  Dr Ridley: The foundation receives in lieu of a dividend a covenant of 5% of pre-tax profits.

  Q714  Mr Dunne: So the foundation had no interest in a dividend decision as such?

  Dr Ridley: That is correct. The foundation has had £175 million from us over 10 years.

  Q715  Mr Dunne: Indeed, which is very impressive and distressing to the foundation that that is now going to seemingly come to an end. Are any members of the Board directors of the foundation?

  Dr Ridley: No, currently no members of the Board are directors of the foundation.

  Q716  Mr Dunne: Will the foundation, given its contingent ownership position, have an ability on a transaction with a third party to act as a blocking shareholder in the event that a transaction materialises?

  Dr Ridley: My understanding is that its stake converts automatically.

  Q717  Mr Dunne: Into 15%?

  Dr Ridley: Yes.

  Q718  Mr Dunne: Therefore it could have a blocking shareholding if the acquirer acquires 100%.

  Dr Ridley: No, it converts once the acquirer has, whatever the expression is, full control.

  Mr Applegarth: It is not blocking. It is a dilution.

  Q719  Mr Dunne: Picking up the Chairman's comment about the decision to reverse the dividend, did you have any discussions with the Bank of England which helped you change your mind?

  Dr Ridley: No. The discussions about the dividend we had were with the FSA and with other advisers.


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