Patrick Hosking
Northern Rock is giving disgraced former chief executive Adam Applegarth a £760,000 pay-off, a £346,000 pension top-up and continuing to honour his cut-price staff mortgage.
The pay-off is much larger than the sum foreshadowed in December, when sources close to the bank insisted Mr Applegarth would get less than six months' pay.
Rock revealed today that it had plunged to a £167.6 million loss last year, compared with a profit of £627 million in 2006, because of the exceptional costs of the strategic review and write-offs on mortgages and unsecured loans.
New chairman Ron Sandler also warned that he expected the bank to continue to make losses for the next three years before breaking even in 2011.
The Rock report also details that:
The extent of the flight by depositors during and after the run last September was revealed for the first time: net outflow of funds was £12.2 billion.
Bryan Sanderson, who was appointed chairman on 19 October and stood down to make way for Mr Sandler last month, will be allowed to keep his £315,000 fee and up to £85,000 for office costs.
And Paul Thompson, who was heading a company-preferred buy-out vehicle for Rock, was paid £100,000 for his services as a non-executive director from 17 January to 22 February - for five weeks' work.
Mr Applegarth, who was responsible for devising and implementing the bank's disastrously flawed strategy, is being paid the golden goodbye in 12 monthly instalments of £63,000, according to the annual report published today.
The value of his pension pot increased by £346,000 last year, the annual report also reveals, and now stands at £2.6 million. The accrued pension entitlement is £305,000 a year.
Mr Applegarth, 45, will also continue to enjoy a concessionary staff interest rate on £75,000 of his mortgage from the bank, Rock said, without disclosing the precise terms.
The pay-off is equivalent to a year's base pay for Mr Applegarth, who finally left in December after announcing plans to step down in November. He had run the bank for the previous six years.
Mr Applegarth has in the past refused to shoulder the blame for Rock's flawed over-dependence on wholesale funding and its over-aggressive expansion of its mortgage book. Last October he told MPs the collapse was the fault of the Bank of England, which failed to approve a potential rescue bid from Lloyds TSB.
Today, the bank admitted to deteriorating quality of its loanbook, with mortgage arrears growing, though still low by industry standards, and bad debts on the £8 billion unsecured loanbook worsening more sharply.
However, there was one glimmer of good news for taxpayers, who are in effect underwriting the £100 billion of Rock liabilities. Bank of England loans to Rock, which stood at £26.9 billion on 31 December, have since been reduced to £24 billion. Rock said it expected to completely repay Bank of England debt by 2010 and to no longer need the Treasury guarantee by 2011.
Mr Sandler said, "Looking ahead we have developed a business plan that we believe will help drive the bank back towards profitability and ensure it has a sustainable future and remains an important employer in the North East."
PA
Monday, 31 March 2008
The former boss of Northern Rock will be entitled to a £760,000 payoff despite the bank being rescued by the Government, it was confirmed today.
Adam Applegarth, who stepped down as chief executive of the mortgage lender in December, could receive £63,333 a month for up to a year under the severance deal, the nationalised lender's 2007 annual report said.
The document also revealed that Northern made a loss of £167.6 million during the year as it tried to fight off nationalisation, compared to a £626.7 million profit the year before.
Northern Rock, which is now under the chairmanship of City troubleshooter Ron Sandler, also said it pledged to repay £24bn in Government loans by the end of 2010.
The annual report discloses that Mr Applegarth was entitled to a "termination payment" of £760,000 when he left on 12 December last year.
This is payable monthly until 16 November this year, but will be reduced if the former boss gets another job paying more than £20,000 in salary before that time.
The annual report said Mr Applegarth's settlement terms were "substantially less" than the amount he was otherwise due when he left last year.
Northern Rock also agreed to contribute £5,000 plus VAT towards Mr Applegarth's legal fees, it was disclosed.
And £75,000 of his mortgage will continue to be charged at the concessionary staff interest rate until November.
Northern Rock said there had been a £12.2bn outflow of retail deposits in the year, compared with inflows of £2.5bn in 2006. This followed the run on the bank as customers queued to withdraw savings in the aftermath of Northern asking the Bank of England for emergency assistance.
Northern Rock blamed its 2007 loss on exceptional costs related to the company's strategic review after the money markets froze last summer and ruined its business model, as well as writedowns on investments linked to the credit crunch.
But the bank said it made an underlying pre-tax profit of £421.9m after stripping out the effects of the non-recurring costs. This compares to £587.2m a year earlier.
The lender said it incurred £127.2m of one-off expenses during the second half of 2007, including £51m in administrative fees as bosses tried to fight off collapse through a strategic review.
Northern Rock was nationalised last month after the Government rejected takeover bids from Sir Richard Branson's Virgin group and an in-house management team.
The bank warned today that it would be "significantly" loss-making this year due to further restructuring costs, higher funding bills and the deteriorating credit environment.
* Graeme Wearden, Phillip Inman and Jill Treanor
* guardian.co.uk,
* Monday March 31 2008
Northern Rock today admitted that the cost of last year's near-collapse left it nursing a £167m loss, and warned that it will not return to profit for at least the next three years.
The bank, which was taken into public ownership in February, pledged not to try to offer customers the best deals in the market while the government is keeping it afloat.
It also confirmed that it has agreed to pay former chief executive Adam Applegarth up to £760,000 and increase his annual pension by more than £40,000 a year to £304,000.
He also received £5,000 from the company to cover his legal bills, and continues to enjoy a discounted rate on part of his mortgage. Increased security on his home, costing between £5,000 and £10,000, was also paid by Northern Rock.
Ron Sandler, chairman of Northern Rock, refused to discuss the pay-off at a press conference, arguing that the decisions were taken before he was appointed.
Angry unions and MPs said the government should reveal why the lender has paid Applegarth more than double the amount it intended when he could reasonably be described as the chief architect of a "reckless" business model.
Shareholder groups have also been watching the situation as the payment will be regarded as a benchmark for so-called rewards for failure. Peter Montagnon, head of investment affairs at the Association of British Insurers, said: "In the circumstances of what happened it really is quite regrettable that there is any payment at all. It all comes back to the writing of the [director's] contract."
The investor body had previously warned shareholders of its concerns about the size of bonuses of executives at the bank for four consecutive years before its business model imploded and led to its nationalisation.
Montagnon said that at least there had been no attempt to include any of Applegarth's previous bonus payments "as when there has been a calamity this always seems inappropriate".
He also made it clear that the one-year salary granted to Applegarth should "not been seen as a floor" to other companies.
Unite, Britain's largest union said there should be a full investigation of the lender's crash last year. It said: "Those who contributed to the failure of Northern Rock must be held to account."
It is understood the main City watchdog, the Financial Services Authority, sought legal advice on taking action against Applegarth and other senior executives, but agreed to take no further action.
Applegarth quit Northern Rock in December, three months after the lender was bailed out by the Bank of England.
'Significantly loss-making'
In its annual report, published this morning, Northern Rock revealed that it made a loss of £167.6m in 2007, compared with a profit of £626.7m the previous year. It expects to be "significantly loss-making" this year, and will not return to profit until 2011.
Last year's loss included £127.7m of "professional fees and costs", thought to include payments to banks, law firms and PR agencies, after it was forced to seek emergency funding from the Bank of England in September.
As well as its own costs, Northern Rock must pay £12.5m of costs run up by the Bank, the FSA and the Treasury.
Sandler hopes the Newcastle-based bank can be returned to private ownership in a slimmed-down form. He said 2,000 jobs would be cut over the next two years, most of them in the next 12 months.
Northern Rock owes the Bank £24bn, but said today it hopes to repay this by the end of 2010.
The company increased its share of the mortgage and savings market significantly in recent years with a series of attractive offers. Now that it is under temporary public ownership, such tempting offers will no longer be on the table.
Sandler said: "We will be a more modest participant in the mortgage market with a more prudent book than has been the case historically."
It has committed itself to a "competitive framework", under which it promises not to use its government support to unfair advantage. The framework includes a pledge to limit its share of retail deposit balances to 1.5% in the UK and 0.8% in Ireland, and its share of gross new mortgage origination to no more than 2.5%.
It also promised not to rank in the top three in any of the major retail savings products categories during 2008.
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