Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 740 - 746)



  Q740  Mr Mudie: Sir Callum said, "I think it is incorrect to regard the private sector solution as being a firm, cut and dried offer. It was still at an exploratory stage." It sounds to me that it was well past an exploratory stage, and it would have to be to give comfort to the depositors.

  Dr Ridley: A degree of exploration had obviously taken place, yes, but no, there was no firm offer. We never had an offer on the table.

  Q741  Mr Mudie: No, but you would have got an offer, you are strongly confident, if you had had that guarantee.

  Dr Ridley: We cannot be sure of that.

  Q742  Mr Mudie: Your chief executive seemed to indicate earlier that he would be content with that and that would have saved the problem.

  Dr Ridley: Had an offer come forward within a day or two on that basis then yes, we would have been in a better position but of course, you cannot be absolutely sure that an offer is going to come forward.

  Q743  Chairman: Sir Ian, finally, do you think relations between the Board and the shareholders of Northern Rock were sufficiently transparent?

  Sir Ian Gibson: I think they were, yes. In fact, to pick up a series of questions asked earlier, over the years Northern Rock's overall approach has been to be extremely transparent about the simplicity and straightforwardness of its model because that has enabled it to disclose the quality of its book and therefore attract reasonably priced credit. That has continued too with its shareholders.

  Q744  Chairman: The reason I am asking that is that lawyers for the UK Shareholders Association are now examining whether there is a potential class action suit against Northern Rock for withholding crucial information that could have prevented shareholders from losing millions of pounds. That is a press comment. Do you feel that Northern Rock should have disclosed details of the risks to its business model sooner? Why did the Board wait a whole month before announcing crucial information to shareholders?

  Sir Ian Gibson: On the first point, the risk information about its model was very clearly in the market and has been for a very long time. It is a very clear presentation of the company that is given in our annual report. It is a very straightforward business. It is essentially a UK mortgage-only business, which some would see as a weakness, others would see as a strength. It depends on your point of view. The data surrounding that has been transparent to all for a considerable period, not just this year but year on year. As for a secondary position, I think colleagues of yours, Chairman, explored in great detail with the chairman and the chief executive just now the whole process that took place from, I guess, 14 August onwards, where we consulted legal advisers, the UK Listing Authority, the FSA, later the Tripartite, in terms of what was appropriate to disclose at what point, either about other party discussions or about discussions with the Bank of England or about the trading circumstances of the company, and we are fully satisfied that we did follow the best advice and follow it to the letter.

  Q745  Chairman: I am mindful that the Governor of the Bank told the Treasury Select Committee that he was alerted to an impending crisis on 14 August. The shareholder group is saying they wanted to know why an announcement was delayed until the rescue package was finalised on September 14, exactly a month later. What answer is there to that, Sir Ian?

  Sir Ian Gibson: You have heard the answer, that first of all, we were in a series of discussions with not just the one party that has been focused on right now but a number of potential acquisition partners, and through that period, with the advice of the UKLA and the FSA, as well as our lawyers, it was not suitable to put information into the market. We were, by the way, continuing to fund, as has been pointed out, varying amounts different days, but we were always continuing to fund; we were always liquid. The profits that we are now forecasting for `07 are in the market and profit warnings were issued at the appropriate times in all cases. Once we were in discussions with the Bank of England, our guidance from all involved, including clearance with the UKLA, was that those discussions be not made public because there are circumstances, and we have certainly seen the results of those circumstances, that mean it is not appropriate in the view of the listing authority or the FSA that certain of those discussions are taken to the market, and they might be for a different business.

  Q746  Chairman: Finally, can I ask you to give us a message in terms of the future of Northern Rock over the next six, nine months to reassure people.

  Sir Ian Gibson: First of all, it is a bank that remains in business, that is solvent, that is serving its customers, that is paying its debts, that is paying its employees, and it continues to wish to do that and will strive in every degree to do that. Secondly, we know we have the period essentially between now and the end of this year in which to work out the most appropriate strategy for the bank, for the company, for its shareholders, for its creditors, for its stakeholders and for its employees—we have all those groups to consider, and we will—and to bring that to the Tripartite group and obtain what consents and appropriate support are necessary for whichever of the range of solutions that we end up choosing, and to do that in such a fashion that people will say post that event ... From my viewpoint, I hope they say "They did the best that anybody could," because that is what I want them to say and I hope that committees like this are able to say, "In the light of quite unpredictable, unforeseen circumstances, they made a decent fist of it in the end."

  Chairman: We have a long way to go there because we are looking at the Tripartite agreement and to date not many people have taken responsibility, so that is a conundrum for us which we want to examine over the next few months. Can I thank you for your attendance this morning.

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