Business World

Sunday 21 January 2018

FSA won't act against ex-Northern Rock boss

Former finance chief fined and banned from industry

Patrick Hosking in London

THE man who led Northern Rock into the financial abyss has escaped any censure over accounting irregularities that kept shareholders in the dark about the level of defaults by the bank's borrowers.

The decision not to pursue Adam Applegarth or the former finance director Bob Bennett came as a third former Rock employee was fined and banned from the financial services industry yesterday.

David Jones, who was finance director-designate in January 2007, was judged by the Financial Services Authority (FSA) to have allowed false mortgage arrears figures to be given to shareholders over a long period.

But the FSA also said it was closing the case. "We will not be taking further action against other individuals in relation to this case," a spokesman said.

In April, the authority fined and banned David Baker, the former deputy chief executive, and Richard Barclay, the former credit director, over the failings.

The decision to stop pursuing Rock directors came in spite of evidence that the bank first misled shareholders in 2005, when it started to conceal a growing number of cases of borrowers whose properties had been earmarked for future possession but the possession had not yet taken place.

These cases were not reported as either arrears or possessions, leading to a serious flattering of the quality of Rock's loan book. By January 2007, 1,917 such cases were being concealed. If they had been disclosed, then either arrears cases would have been reported as 50pc higher or possessions would have leapt by about 300pc, the FSA said.

Mr Jones inherited the improper methodology when he became finance director-designate in January 2007. He had opportunities to put things right but failed to do so, the FSA said.

Mr Applegarth and Mr Bennett were, respectively, chief executive and finance director throughout the two years between 2005 and early 2007.

The FSA found in its earlier investigation in April that Mr Baker had not informed Mr Applegarth of the unusual accounting treatment. There was no mention of the conduct of the board audit committee in the FSA investigation.

Wiped out

Within months of Mr Jones' decision to allow the improper accounting to continue, Rock was in serious trouble and had to be rescued. Although it was destroyed by the paralysis in the funding markets, the seemingly excellent arrears levels persuaded many investors to buy its shares. They were wiped out.

Mr Applegarth boasted that Rock's arrears levels were half the industry average and internally there were strict orders to staff to maintain that strong performance.

Mr Jones said yesterday that he considered the FSA's conclusions to be unfair and disproportionate. However, he conceded: "I accept that I did not ensure information on residential arrears prepared and presented by others was corrected to include certain accounts known as 'pending possession cases'."

Irish Independent

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