Thursday, 16 October 2008

Northern Rock was no-one's fault

Here’s the snippet from NR’s trading statement issued the other day announcing that there would be no legal action against either former directors or the auditors.

“A review of the conduct of the previous Board in respect of funding and liquidity has been undertaken with the assistance of external advisors, Freshfields and KPMG Forensic. 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. The Board has also completed a similar review in respect of the Company’s auditors and has determined that no action is warranted.”

Of course, one can make the argument, as Applegarth did, that the events that floored NR were unforeseeable. In addition I’ve never really bought the argument that the auditors were at fault - yes they earned money from work on securitization, but what exactly does that make them responsible for? And more broadly I’m a subscriber to the “s**t happens” school of thinking. Just because something has gone wrong/failed doesn’t necessarily mean someone is to blame. But somehow it seems an odd conclusion the issue, and Unite don't like it.

Maybe it’s the Government’s fault…?

7 comments:

Nick Drew said...

the NR business model was by no means irrational

but it bore a very specific risk profile

and it was sui generis in the UK market, stood out like a sore thumb, therefore the FSA should have called it in for a very rigorous health check - particularly when its share-price started to head south systematically at the start of 2007

Paulie said...

Here's someone blaming a Union for a banking SNAFU. Not soley the Union, but worth a look:

http://labourandcapital.blogspot.com/2008/10/northern-rock-was-no-ones-fault.html

Tom P said...

Yeah I think the FSA has a bit of a case to answer, but to what extent can regulators be held responsible for boards failing to run their own companies properly?

Also to what extent the fall in the share price was a useful indicator? Other banks were experiencing something similar. I had a look at the voting records of some of the big institutions and barely any of them voted against anything at the AGM in April. They must have all thought it was still basically sound.

Tom P said...

Paulie - wrong link?

Tom P said...

PS Nick, you might be intersted in commenting on this post that came out of the discussion about shorting housing:

http://citizenandreas.blogspot.com/2008/10/more-markets.html

Paulie said...

Damn good point.

Meant to paste this....

http://killianforde.blogspot.com/2008/10/doorshuttinghorseafterbarn-etc.html

Nick Drew said...

Tom - thanks, have been over