Northern Rock's Ridley Says Crisis Was Unpredictable (Update2)
By Jon Menon and Ben Livesey
Oct. 16 (Bloomberg) -- Northern Rock Plc Chairman Matthew Ridley said the U.K. mortgage lender couldn't have foreseen the surge in borrowing costs that forced it to seek emergency funding from the Bank of England last month.
``We were subject to a completely unpredicted and unpredictable closure of world credit markets,'' Ridley said in a hearing of Parliament's Treasury Committee in London today. He said his ``resignation is available'' to the board, if demanded.
Northern Rock's stock has declined about 68 percent since the Newcastle-based company said on Sept. 14 it sought emergency funding, triggering the first run on a U.K. bank in more than a century. The bank has borrowed about 13 billion pounds ($26.4 billion) from the Bank of England and may borrow more, Ridley said.
``In April, you were warned'' said John McFall, the Labour member of Parliament who serves as chairman of the Treasury Committee. ``You didn't have a successful strategy. Is that not a failure? If that isn't a red-alert warning, how do you know what is a red-alert warning?''
Northern Rock recognized a potential problem of higher borrowing costs in March and sought to slow down lending, Chief Executive Officer Adam Applegarth said. Lending facilities available to European and U.S. banks weren't available to the company and would have helped, he said.
`Implausible'
``What wasn't stress-tested was the event that was deemed implausible,'' said Applegarth. ``The rapid and long lasting closure of global markets wasn't stress-tested.''
Billionaire Richard Branson's Virgin Group Ltd. and backers including WL Ross & Co. and American International Group Inc. are among the potential bidders for the bank.
Northern Rock yesterday said it's in takeover talks with a number of interested parties and is ``developing further options'' as part of a review of its business. Other potential bidders for Northern Rock include buyout firm J.C. Flowers & Co. and Cerberus Capital Management LP.
``For Northern Rock to deny its strategy was an aggressive strategy is quite difficult at this point,'' said David Pitt- Watson, London-based CEO of Hermes Asset Management Ltd., which oversees about 60 billion pounds ($122 billion). ``It had been expanding aggressively. Northern Rock was taking some risks here.''
Northern Rock's shares declined 4.4 percent to 206.75 pence at 12:05 p.m. in London, valuing the company at 869.8 million pounds.
Proposals to buy Northern Rock have to be assessed by the Bank of England, the U.K. government's Treasury and the Financial Services Authority, the bank said. The so-called tripartite group has given Northern Rock until February to agree to a solution.
The Bank of England last week agreed to guarantee all of Northern Rock's customer deposits and widened its credit line to allow it to borrow money from the central bank on all its assets.
Bank of England Governor Mervyn King last month defended his handling of the Northern Rock bailout and said British and European Union laws hindered the central bank's ability to avoid the banking crisis.
To contact the reporter on this story: Jon Menon in London jmenon1@bloomberg.net Ben Livesey in London blivesey@bloomberg.net
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