Examination of Witnesses (Questions 700
TUESDAY 16 OCTOBER 2007
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
Dr Ridley: There was a sharp decline
in the markets generally in the middle of August and some recovery
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
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
Dr Ridley: I do not know the answer
to that question.
Q708 Mr Dunne: Approximately?
Dr Ridley: Can we write to you
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
Dr Ridley: No. The discussions
about the dividend we had were with the FSA and with other advisers.
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