Bank directors face questioning by MPs

AN influential Commons committee will today quiz Northern Rock bosses as North-East MPs stressed the future of jobs and the Northern Rock Foundation are “absolute priorities”.

AN influential Commons committee will today quiz Northern Rock bosses as North-East MPs stressed the future of jobs and the Northern Rock Foundation are “absolute priorities”.

Bank chief executive Adam Applegarth will appear before the Commons Treasury committee, along with chairman Matt Ridley and non-executive directors Sir Ian Gibson and Sir Derek Wanless.

Committee member Jim Cousins, MP for Newcastle Central, said he wanted answers about the future of the bank and its charitable arm, while Berwick MP Alan Beith stressed the “absolute priorities” were jobs and the Foundation.

Mr Cousins added there were questions for the longer-term about how the board conducted the business and warned against today’s hearing becoming a “hanging party” for the directors.

“I don’t think that would be very helpful for the future of the business, the shareholders, the foundation or especially the employees,” said the Labour MP.

A key issue was finding out whether any undertakings had been made in exchange for “wide-ranging guarantees” given by the Government in relation to the bank, said Mr Cousins.

The Newcastle MP added he wanted to know the board’s views and priorities for the future, with a bid led by Sir Richard Branson’s Virgin group proving the best offer so far – although the “small print” still needed to be examined.

Mr Cousins said the proposals would retain the company’s UK listing, provide something for shareholders, maintain the Northern Rock Foundation and use the bank as a platform to launch a new retail bank which could be good news in terms of employment.

But the Virgin bid effectively “wipes out” the current directors, said Mr Cousins, who wants reassurances they will be guided by a concern for the future of the business, jobs, the Foundation and small shareholders.

Berwick MP Alan Beith said there were serious questions for the board but added any proposals for the bank and potential bidders must be judged on prospects for jobs and the Foundation, although he warned the Northern Rock name could be lost.

He said Sir Richard Branson’s team had indicated they wanted to save jobs and the Foundation, but added: “The North will want to see clear evidence of that, clear evidence of real commitment. To be taken seriously, it has to be made credible. That is what we want to hear from bidders.”

Mr Beith also revealed he had written to the Prime Minister and Chancellor urging them to use all their efforts to secure the “great contribution” made to the region by Northern Rock and its Foundation.

The hearing today comes as 15 MPs have now signed a Commons motion calling on Northern Rock to do all it can to secure jobs in the North-East and provide assurances about the future of the Northern Rock Foundation.

Blaydon MP Dave Anderson has also tabled a motion celebrating the Northern Rock Foundation and asking for it to be taken into account in any negotiations about the future of the bank.

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Hedge fund urges support for business to continue

FRESH support for Northern Rock to remain as a “viable” business has come from a hedge fund that has built up a stake in the company.

Bosses at the SRM Global hedge fund, based in the Cayman Islands, yesterday told The Journal that Northern Rock had a “portfolio of high quality assets” and urged people to continue to support the bank. The show of support comes after it emerged that the hedge fund, which invests money for major institutions, has built up a 4% stake in the business – and is constantly monitoring the situation surrounding Northern Rock. Ian Barclay, a partner at the hedge fund, said: “As one of the largest shareholders in Northern Rock, we believe that the bank has a portfolio of high quality assets.”

He said they urged that the bank continue to receive support from credit providers, customers and employees during this period of disruption and looked forward to Northern Rock remaining a stable and viable business.

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Price of Rock’s shares fall by 20%

NORTHERN Rock’s share price fell by around 20% to 216.25p yesterday as analysts said current shareholders could lose out if Virgin’s plans to pump cash into the group and rebrand the business went ahead.

Panmure Gordon banking analyst Sandy Chen said: “We have made some rough valuation scenarios on the Virgin offer – with a £1bn injection, they point to a potential for 150% returns for Virgin investors, but 20% downside for current Northern Rock shareholders.”

Northern Rock has confirmed talks are being held with a number of potential suitors over a possible rescue deal but warned that discussions were at “a very early stage”.

A consortium led by Sir Richard Branson’s Virgin has unveiled plans to bring the lender into its Virgin Money business, while private equity firms JC Flowers and Cerberus are also said to be interested in the group.

But Northern Rock, which was forced to agree emergency funding from the Bank of England last month after soaring borrowing costs, said there was no certainty over the outcome of the talks.

The UK’s fifth-biggest mortgage lender said the discussions were at a very early stage and the proposals it had received so far were “preliminary in nature”.

It added: “Northern Rock will continue to work with potentially interested parties to understand more fully their preliminary proposals.”

The firm added that any deal would have to be assessed by the Bank of England, the Financial Services Authority and the Treasury.

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