No legal action against Rock chief

Northern Rock has said it will not take any legal action against Adam Applegarth, who led the mortgage lender to the brink of collapse, and confirmed it is well ahead of schedule in efforts to pay off emergency loans provided by the government.

However, the former building society warned that life will get harder as the eco-nomic slowdown in the UK poses new challenges for lenders.

Thirteen months after it had to rely on a government bailout to save it from the turmoil in global credit markets, Northern Rock confirmed that it would not be pursuing those in charge when the bank almost hit the buffers.

"A review of the conduct of the previous board in respect of funding and liquidity has been undertaken with the assistance of external advisers, Freshfields and KPMG Forensic," the company said.

"The board has concluded that there are insufficient grounds to proceed with any legal action for negligence against the former directors, and has no intention of bringing any such action."

Asked to specify the difference between "insufficient grounds" and "no grounds" for action, chairman Ron Sandler said: "There is not a huge amount more I can say."

The decision will mean that Applegarth, the former chief executive who left in December, will not face any legal sanction for his decision to pursue an aggressive push for growth which left the bank increasingly reliant on money market funding. The bank had to seek emergency funding from the Bank of England after borrowing costs soared in the credit crunch. It was nationalised in February.

Applegarth will be free to enjoy the £760,000 pay-off which he was awarded after leaving, although Vince Cable, the Liberal Democrats' Treasury spokesman, said it amounted to a generous reward for failures of leadership.

Another four former directors have left the board since last September. The firm has not said if they received any compensation. Northern Rock said a similar review in respect of its auditors, PriceWaterhouseCoopers, had determined that no action was warranted.

In an update on trading in the third quarter, the company confirmed it was well ahead of schedule to repay the huge funding package that was arranged by ministers.

At September 30, the net balance outstanding on the government loan was £11.5bn, compared with £26.9bn at December 31. This means 57% of the government loan has been repaid.

In March, the company set itself a target of repaying 25% of the loan in 2008, with the remainder to be paid off by the end of 2010.

The provision of government backing has prompted a huge inflow of funds from savers. Total retail funding balances rose to £17.2bn at September 30, from £14.2bn at June 30.

"As a consequence of the turmoil in financial markets, the rate of retail deposit inflows to Northern Rock increased markedly during September."

Northern Rock has shrunk its mortgage book dramatically by encouraging borrowers to move elsewhere. However, the firm warned: "Dislocated financial markets and falling house prices mean that the pace of progress achieved to date will be significantly more challenging to maintain."

The slowdown in the housing market, combined with reductions in the amount being provided by other lenders, will make it harder for borrowers to move to other providers.

Northern Rock may be left with more loans than directors want at a time when growing numbers of people are struggling with their mortgages.

At the end of September 2008, residential arrears over three months were 1.87%, compared with 1.18% at the end of June 2008.

"Together loans" have been the source of most problems. These allowed people to borrow up to 125% of the value of a property.

At the end of September the company was in possession of 4201 properties, compared with 3710 at the end of June.

Still, directors expect the emphasis of the recovery plan to shift from repaying the government loan towards restoring profitability to allow it to return to private ownership.