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Huge rise in repossessions at Northern Rock as anger grows over £760,000 payout for boss who oversaw bank's downfall
Last updated at 01:07am on 01.04.08The former boss of stricken mortage lender Northern Rock is entitled to a £760,000 payoff despite the bank's collapse and rescue by the Government, its annual report reveals.
Adam Applegarth was the architect of the catastrophic business model that led to its problems last year and stepped down as chief executive in December.
But the nationalised lender's 2007 annual report reveals he could still receive £63,333 a month for up to a year under his severance deal.
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'Outrageous': Adam Applegarth, pictured last year and over the weekend (right), will collect the full £760,000 if he does not find a new job in the next year
The document also revealed the scale of Northern Rock's collapse last year as it struggled to fight off nationalisation.
It made a loss of £167.6 million during the year, in contrast to a £626.7 million profit the year before.
The first run on the bank since the 1860s led to a massive outflow of £12.2 billion in retail deposits over the 12 months, compared to inflows of £2.5 billion in 2006.
Customers flocked to take out their savings after the lender was forced to beg the Bank of England for emergency assistance.
Northern Rock, which is now under the chairmanship of City troubleshooter Ron Sandler, also said it pledged to repay £24 billion in Government loans by the end of 2010.
The annual report discloses that Mr Applegarth, 45, was entitled to a "termination payment" of £760,000 when he left on December 12 last year.
This is payable monthly until November 16 this year, but will be reduced if the former boss gets another job paying more than £20,000 in salary before that time.
It said Mr Applegarth's settlement terms were "substantially less" than the amount he was otherwise due when he left last year.
Northern Rock also agreed to contribute £5,000 plus VAT towards Mr Applegarth's legal fees, it was disclosed.
And £75,000 of his mortgage will continue to be charged at the concessionary staff interest rate until November.
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Worried customers: Northern Rock account holders queue to withdraw their cash during panic last year
The executive, who lives in a £2.5million home outside Newcastle with his wife and two sons, already has a pension fund worth at least £2.2million from which he can start drawing at 55.
Vince Cable, the Liberal Democrats' Treasury spokesman, said: "It is outrageous that someone who brought the bank to the brink of destruction and subjected taxpayers to liabilities worth billions of pounds should be rewarded for failure.
"It doesn't look good that the Government appears to be sanctioning payouts of this size to someone who played a big role in the bank's demise."
In 2006, the latest figures available, Mr Applegarth's total pay package was £ 1.4million, including a £660,000 bonus.
He is now rumoured to be circulating his CV to headhunters but the likelihood of him securing another top job is, at best, deemed remote.
One headhunter said: "It is fair to say that no one in the corporate world is going to thank you for appointing him to a business."
But with such a staggering payout and huge pension, Mr Applegarth, a cricket fanatic, is unlikely to need to work again.
Mr Applegarth's lucrative pay-off from the bank will be particularly galling to Northern Rock's workers.
About a third - roughly 2,000 - of them will lose their jobs by 2011, with the majority going this year, according to the bank's new management.
Graham Goddard, of the Unite union, said: "Those who contributed to the failure of Northern Rock must be held to account.
"Unite cannot accept that anyone whose actions contributed to the problems in the bank is able to walk away without any questions being asked of their conduct or any form of reward."
Gordon Brown distanced himself from the pay-off today, claiming it was a matter for the lender alone.
His spokesman said: "This is clearly a matter for Northern Rock, which operates independently of government."
On the issue of the bank repaying Government debt, Mr Brown's spokesman said: "The Prime Minister has said many times it's important that the Government does get the money back from Northern Rock.
"We have taken some difficult decisions in relation to Northern Rock in recent months, including the decision to bring it into public ownership.
"We have a very professional and competent chief executive in place in Northern Rock who is putting in place a business plan to make sure Northern Rock is returned to a sound financial footing and on that basis is able to repay money to the Government."
Mr Applegarth joined the Newcastle-based bank in 1982 after graduating from Durham University.
He rose to become chief executive in 2001, turning the former building society into the country's fifth-biggest mortgage lender. But, as he put it, "life changed on August 9" when the credit crunch started - and Northern Rock's funding crisis began.
In its annual report, the bank blamed its losses on exceptional costs related to the company's strategic review after the money markets froze last summer and ruined its business model, as well as writedowns on investments linked to the credit crunch.
But it said it had made an underlying pre-tax profit of £421.9 million after stripping out the effects of the non-recurring costs. This compares to £587.2 million a year earlier.
Bosses spent £51 million in administration fees alone as they tried to fight off collapse with a strategic review. Total one-off expenses for the second half of 2007 were £127.2 million.
The Government nationalised Northern Rock last month after rejecting takeover bids from the Virgin group and an in-house management team.
It now faces a "significantly" loss-making year due to further restructuring costs, higher funding bills and the deteriorating credit environment.
Last week City regulator the Financial Services Authority admitted to a catalogue of blunders in its dealings with Northern Rock.
But the FSA and the British Bankers' Association believe the ultimate responsibility lies with the bank's management.
In a veiled attack on Mr Applegarth, the BBA said: "No amount of regulation can ensure that wrong decisions are never made."
Reader views (4)
Here's a sample of the latest views published.
It seems to be a modern trend that the more senior someone is and the bigger their total failure the greater the reward! As Northern Rock have been bailed out by taxpayers like myself I hope the 1/3rd of staff will not be given massive payouts and/or enhanced pensions at our expense. It may seem harsh but many are subject to government rules on redundancy and many have lost their pensions because they worked in a company that went bust.
- Michael, London
This is theft from the taxpayer - nothing less. Once again failure is rewarded in our ever more upside down ruined Country.
- Mark, Bournemouth, England
If the Government had not bailed out this bank they would have nothing. So why is this man being rewarded for sheer incompetence. Why is taxpayer's money being paid to him?
- Jk, Kent
Why is failure rewarded? I get nothing so why does someone who has led a bank to collapse get this?
- Stuart, london
