Lib Dems call for legal action against Northern Rock Directors

From the Sunday Times:

VINCE CABLE, the Liberal Democrats’ Treasury spokesman, has called on the government to launch legal action against the former directors of Northern Rock, over allegations that they “misled” taxpayers.

Cable and Lord Oakeshott, his Lib Dem colleague, claim Northern Rock used unconventional accounting practices that flattered the level of bad debts in its mortgage book.

An investigation by the mortgage bank’s new management has revealed that Northern Rock did not always consider customers to be in arrears until they were more than three months behind with their payments.

The Lib Dems claim this practice undermines the repeated claims by Adam Applegarth, Northern Rock’s former chief executive, that the bank’s mortgage book was of a higher quality than the industry average.

Oakeshott is this weekend writing to Alistair Darling, the chancellor, calling for a full independent audit of Northern Rock’s previously issued accounts. It would be designed to assess whether the Bank of England and the Treasury were misled on the health of the company’s finances when agreeing to lend taxpayers’ money.

Cable said: “Given the amount of public funding that’s been involved, I would have thought there might well be a case here.

“The government tried to argue that all this was caused by events from outer space, that had nothing to do with Northern Rock, and that Northern Rock was run by entirely competent sensible people. It’s subsequently emerged that they weren’t and that they made serious errors.”

Oakeshott added: “I have warned repeatedly in the Lords that taxpayers face a £5 billion to £10 billion black hole. The government are being grossly negligent on behalf of taxpayers in not insisting on an independent audit now to see whether Northern Rock’s auditors and directors are liable for misleading interim accounts and statements issued last autumn.”

Northern Rock’s most recent trading statement revealed that the level of arrears in the bank’s mortgage book had doubled in the first four months of the year.

Ron Sandler, the bank’s executive chairman, said that some of the bank’s controls on arrears had been “inadequate” and that new accounting policies being introduced would see arrears levels “move much closer to the industry average”.

Sandler also said, however, that this would not affect the bank’s previously published report and accounts.