Northern Rock Anniversary

by Mark Johnston

Late last month there were two anniversaries of the failed banking system in 2007.  Northern Rock and Lehman Brothers reflect on where they were in 2007 and where they are now.  Licking their wounds, are they reformed or is the issuing of the Vickers report in the same month just a coincidental anecdote by the FSA.
The Financial Services Authority (FSA) has judged and fined two former directors of Northern Rock for their part in the mortgage breakdown during the credit crunch.  These two directors have also been banned from working for a regulated financial firm again.  Deputy chief executive David Baker was fined by the city regulator to the tune of £504,000 for the apparent misreporting of mortgage arrears data.
Richard Barclay has been reportedly fined £140,000 for failing to ensure that there was accurate financial reporting in his role as Northern Rock credit director.  Helpfully, the two named above, admitted their part in the misconduct and for their cooperation were given reduced fines.  Commenting on the FSA judgement, David Baker, Northern Rocks deputy chief executive between 2004 and 2008, said that he accepted the FSA findings with “great sadness” and that he “took responsibility for his actions”.
According to the FSA, he had been aware that almost 2000 loans were left out of the mortgage repossession figures in 2007, failing to make sure the figures were correct and failing to refer the matter up to the chief executive.  He then went on to make misleading statements to market analysts.
Mr Barker apparently gave the department involved 6 months to “resolve, not hide the reporting error”, he went on to say “I made an error of judgement and I regret it,”
While the FSA don’t agree with Mr. Barkers arguments, he never the less still stands that the decision he took did not effect customers or have any impact in th eventual collapse of Northern Rock and the bail out by the government.
The FSA said that the analysis done, based on the reporting produced, would have been used to judge the health of the organisation and that any misleading or incorrect reporting would have an effect.  “Important to the firm’s rapid growth was the maintenance of its asset quality,” said the FSA.
“The value of Northern Rock’s securities [shares and bonds] was in part derived from a market perception of how its loan book was performing.”
Richard Barclay, director of a debt management unit, was overseeing the relentless perception to maintain below average mortgage arrears figures.  This, according to the FSA, led to “improperly reduced” reports and figures and the regulator said that Richard Barclay had failed to prevent a number of “improper practices”.  These were subsequently abused by some staff leading to further improper reporting.
“Mr Barclay’s conduct demonstrated a lack of skill, care and diligence in establishing and overseeing effective systems and controls.”  This lead to Northern Rocks arrears position to be misrepresented.
FSA said that “The fines we have imposed on them leave no doubt that we will take action against individuals who either fail to act with integrity or who fail to perform their roles to a high standard,” “This is a loud and clear message that we are serious about taking action against senior directors where they step over the line.”

Northern Rock anniversary Late last month there were two anniversaries of the failed banking system in 2007.  Northern Rock and Lehman Brothers reflect on where they were in 2007 and where they are now.  Licking their wounds, are they reformed or is the issuing of the Vickers report in the same month just a coincidental anecdote by the FSA. The Financial Services Authority (FSA) has judged and fined two former directors of Northern Rock for their part in the mortgage breakdown during the credit crunch.  These two directors have also been banned from working for a regulated financial firm again.  Deputy chief executive David Baker was fined by the city regulator to the tune of £504,000 for the apparent misreporting of mortgage arrears data.  Richard Barclay has been reportedly fined £140,000 for failing to ensure that there was accurate financial reporting in his role as Northern Rock credit director.  Helpfully, the two named above, admitted their part in the misconduct and for their cooperation were given reduced fines.  Commenting on the FSA judgement, David Baker, Northern Rocks deputy chief executive between 2004 and 2008, said that he accepted the FSA findings with “great sadness” and that he “took responsibility for his actions”.  According to the FSA, he had been aware that almost 2000 loans were left out of the mortgage repossession figures in 2007, failing to make sure the figures were correct and failing to refer the matter up to the chief executive.  He then went on to make misleading statements to market analysts.  Mr Barker apparently gave the department involved 6 months to “resolve, not hide the reporting error”, he went on to say “I made an error of judgement and I regret it,” While the FSA don’t agree with Mr. Barkers arguments, he never the less still stands that the decision he took did not effect customers or have any impact in th eventual collapse of Northern Rock and the bail out by the government.  The FSA said that the analysis done, based on the reporting produced, would have been used to judge the health of the organisation and that any misleading or incorrect reporting would have an effect.  “Important to the firm’s rapid growth was the maintenance of its asset quality,” said the FSA. “The value of Northern Rock’s securities [shares and bonds] was in part derived from a market perception of how its loan book was performing.” Richard Barclay, director of a debt management unit, was overseeing the relentless perception to maintain below average mortgage arrears figures.  This, according to the FSA, led to “improperly reduced” reports and figures and the regulator said that Richard Barclay had failed to prevent a number of “improper practices”.  These were subsequently abused by some staff leading to further improper reporting.  “Mr Barclay’s conduct demonstrated a lack of skill, care and diligence in establishing and overseeing effective systems and controls.”  This lead to Northern Rocks arrears position to be misrepresented.  FSA said that “The fines we have imposed on them leave no doubt that we will take action against individuals who either fail to act with integrity or who fail to perform their roles to a high standard,” “This is a loud and clear message that we are serious about taking action against senior directors where they step over the line.”



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