Select Committee on Treasury Minutes of Evidence


Examination of Witnesses (Questions 720 - 739)

TUESDAY 16 OCTOBER 2007

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

  Q720  Mr Dunne: Were there any discussions with someone from the Treasury or the Chancellors office?

  Sir Ian Gibson: On the day that the Board reached the decision not to pay the dividend there were discussions on a broad range of issues, including the dividend, with the Tripartite group. The Treasury was there, the FSA was there and the Bank representative was there too.

  Q721  Mr Dunne: So would it be fair to characterise your decision that part of the contributory reasons to changing your decision on the dividend was because you had been leant on by the authorities that were providing the bank facility?

  Sir Ian Gibson: No, it would not be fair to characterise it like that.

  Q722  Mr Dunne: How would you characterise the nature of those discussions with the Tripartite members on the dividend?

  Sir Ian Gibson: They wished to understand in detail what the Board's thinking was at the point at which we were having those discussions with them, where we stood on dividend, where we believed shareholders' expectations were, what we believed the view of rating agencies might be in the case of pay or not pay, and what we saw as any potential risk to our regulatory capital. We explained our thinking to them on those fronts and explained the process that the Board was then going through in terms of its review over whether or not to pay the dividend.

  Q723  Mr Dunne: So the Board changed its view rather than was persuaded to change its view?

  Sir Ian Gibson: I think the chairman characterised it well, which is that we must as a Board or as a sub-committee of the Board have discussed the dividend payment almost daily—I do not have my notes with me but very frequently during that period. I noticed the Chairman of this Committee's comments during that period, for example. We looked at a whole bunch of comments that were made. You said it was a matter of public interest. There were lots of comments that the Board talked about every day in saying "What should we take account of here?"

  Dr Ridley: On the point about what proportion of our shares are held by employees, I do know that we have a very large number of small shareholders in comparison with the size of our staff and that is why we know that it is a small number. The proportion of shares held by employees will certainly be less than 10% and almost certainly less than 5%.

  Q724  Mr Love: On a related issue, I understand that the company continued to urge employees to buy in the share-save scheme that you operate up till the end of August, when clearly there were some difficulties. In retrospect, do you think that was a sensible decision? As I understand it, it came to an end at the end of August. For those that had signed up, was it possible at that stage to cancel it on the basis that those employees who had signed up might lose significantly from the purchase of those shares?

  Mr Applegarth: The Save As You Earn scheme, the money that is invested they can withdraw back as cash, so in terms of losing their money, no, that was not the case.

  Q725  Mr Love: They can do that at any time, or do they have to do it before the closure?

  Mr Applegarth: They have to do it at certain specified dates.

  Q726  Mr Mudie: I think there is general agreement that if we had a market solution it would have been better all round. Andy asked questions of the Takeover Panel. Did your advisors indicate any difficulty in the safe haven deal being dealt with in a satisfactory timescale, in other words, not reaching the Takeover Panel? We got the impression from certainly the Bank of England that it was impossible because of the Takeover Panel and the length of time and market disclosures, etc.

  Mr Applegarth: You certainly would not have been able under the current legislation to actually complete a transaction within a weekend but we would have been able to have an offer of a transaction, and it is my belief that the offer of a transaction with a well-known bank would have been enough to stop it.

  Q727  Mr Mudie: You started discussions in mid-August and they came to a head in September. The chairman rang the Bank of England on 16 August. That was certainly a direct line then. Where were the FSA in terms of liaising, speaking, working with you throughout August into September?

  Mr Applegarth: We formally had two calls a day with the FSA but I have to say that the number of informal contacts were greater than that. So we were in very close and continuous contact with the FSA and, of course, they are our lead contact for the Tripartite and they garner information offers for others in the Tripartite and they pass communication across. So the FSA were kept right up-to-date with everything we were doing on corporate activity.

  Q728  Mr Mudie: How up-to-date and how supportive were they of this safe haven?

  Mr Applegarth: I think it can be generally characterised that everybody could see that it would be a potential—

  Q729  Mr Mudie: When you say that, can you confirm that "everybody"? It is certainly not the evidence that the Bank of England could be included in that "everyone".

  Mr Applegarth: That is a fair point. I am relying on feedback from the FSA, who are our key contact of the Tripartite. It may be either the chairman or the senior independent in their direct contacts with the Bank got a different view.

  Q730  Mr Mudie: So the FSA in effect were the liaison point between you and the Tripartite, and the FSA therefore worked closely, I presume, on the safe haven argument with you and regarded it as serious enough to actually take to the Tripartite to ask them to consider.

  Mr Applegarth: Yes.

  Q731  Mr Mudie: Did they give you any stronger feeling than that? We failed to get Sir Callum, maybe out of loyalty to the Tripartite, to say specifically that he supported it. I am at a loss. If his organisation took it to the Tripartite, they clearly would not have wasted their time or wasted your time in a pretty fraught situation by taking something that was lame at that point in the game to the Tripartite. Did you get the impression they were supportive, that they thought it was a serious idea?

  Mr Applegarth: I think the hard thing we have in answering that question is clearly that we were not party to the Tripartite discussions. We only know the feedback from the FSA and they were encouraging us to look at every opportunity to avoid having to go to a lender of last resort.

  Q732  Mr Mudie: Let me just ask you this, as a layman. Certainly you, Dr Ridley. As an ordinary bloke who hears disaster being faced, you work with the FSA and you have another organisation willing to take you over and save all the problems. The FSA take it off to the Tripartite and you get a decision no. Did you just accept this with aplomb or did you pick up the telephone and speak to anyone and say "What the hell is going on?" I find it strange.

  Dr Ridley: We were only going to be in a position to take or not take a decision when we had an offer. We were doing everything we could behind the scenes, both with the authorities and through our advisers with other corporate parties to encourage an offer to come forward in the interests of our shareholders, creditors and other stakeholders. Yes, we picked up the phone to anyone and everyone.

  Q733  Mr Mudie: No, I am not making myself clear. At the stage where the FSA took the deal to the Tripartite group—

  Dr Ridley: I am not clear that is quite the right way of characterising it. It is for them to answer about that but there was not a deal that was taken by the FSA to the Tripartite group, as I understand it. There were continuous negotiations going on between Northern Rock and the other party, through advisers, and with the FSA talking to both Northern Rock and the other party and the Bank of England likewise. The efforts being made were to find a deal that was acceptable to the acquiring party, that was likely to be acceptable to ourselves and required various forms of support from the Tripartite authorities.

  Q734  Mr Mudie: Yes, that is the specific point, and the Tripartite support was whether the facility that was eventually offered to you was going to be transferable. Was that a condition of the deal from the safe haven? I dislike calling Lloyds Bank a safe haven because they will use that as a slogan for years: "Lloyds, the safe haven bank."

  Dr Ridley: Because of the liquidity problems in the market, in particular affecting us, we understand that the other company needed to have their comfort and were negotiating towards that. We were not part of that negotiation.

  Q735  Mr Mudie: That was the thing that broke the deal. Did you respond to the Bank of England in terms of shock or anger or disappointment that the deal had foundered because of their decision, or did you just accept it?

  Dr Ridley: No. As I say, we continued to speak to anyone and everyone.

  Q736  Mr Mudie: No, no. I am just asking. The normal point would have been to pick up the telephone and speak to the Governor of the Bank of England and say, "What the hell are you doing? We could avoid everything. This deal is on the table. Why are you not taking this decision?" Moral hazard, of course. Did you do that and if not, why not?

  Sir Ian Gibson: Could I comment?

  Q737  Mr Mudie: No, let the chairman. I am just asking for a specific point of view from the chairman. The whole thing is in your hands, what your company, your staff, your depositors are facing. Did you pick up the telephone and play hell with the Bank of England?

  Dr Ridley: We spoke to the Bank of England about all of this, yes, but—

  Q738  Mr Mudie: I know you did but just answer the question. When the decision came back "Sorry, they can't agree the facility," I am just as a layman thinking anybody in this room would have said, "I'd better speak to the guy. He doesn't understand how serious this is."

  Dr Ridley: We were told that it was impossible for them to provide the facility.

  Q739  Mr Mudie: Okay, so you just accepted it. This is not a judgemental comment. You just accepted it.

  Dr Ridley: We did our best to put the position.


 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2008
Prepared 1 February 2008