Adam Applegarth, chief executive of Northern Rock, and its chairman Matt Ridley will on Tuesday appear in public for the first time in a month to face hostile questioning from an influential Commons committee.
MPs will put intense pressure on Mr Applegarth and Mr Ridley to explain the dramatic sequence of events that led to the Newcastle lender asking the Bank of England for emergency funding to stave off disaster last month.
The Treasury select committee will ask them to account for why the bank adopted such an extreme business model, which relied on capital markets for 75 per cent of its funding. Mr Applegarth will also be questioned on the bank’s decision to expand new mortgage business aggressively in the first half of this year.
“They’ve got plenty of questions to answer,” said Michael Fallon, the most senior Conservative MP on the committee.
Mr Fallon said he wanted to know why the board had failed to ensure Northern Rock had access to liquidity and why it had not taken out any insurance against illiquidity. He also questioned the incentives offered to management.
“The bonus structure was predicated on growth in the volume of business – why were the directors incentivised like that?” he said.
Northern Rock non-executive directors Sir Derek Wanless and Sir Ian Gibson will also face the committee.
Colin Breed, Liberal Democrat MP, said the committee wanted to know more about Northern Rock’s business model.
“They increased the level of their business by employing an extreme model – was that a board decision or was it pursued by the executives without much understanding by the non-executives?” he said.
He also questioned the quality of Northern Rock’s loan book, particularly its controversial Together product, which includes a loan and mortgage worth 125 per cent of the value of a property.
“As a former banker, I find it hard to believe that they have a good loan book when they have been lending 125 per cent of a property’s valuation and providing funding based on five to six times income,” Mr Breed said.
George Mudie, Labour MP, said he wanted to find out whether Northern Rock executives had spurned an offer by Lloyds TSB, which had been talking to the lender in the days before it received Bank of England support.
“I’d be shocked if the chief executive and chairman keep their positions once this is all over,” Mr Mudie said.