Northern Rock's chief steps down

Adam Applegarth has been heavily criticised for the bank's problems

The chief executive of troubled British bank Northern Rock, Adam Applegarth, has resigned, the lender has said.

The bank's shares collapsed after it was forced to seek emergency funding from the Bank of England in September.

Concerned customers rushed to withdraw their money, and the bank has since been seeking bidders to rescue it.

Two suitors, Virgin Group and investment firm Olivant Advisers, confirmed they had made proposals to rescue the bank by a Friday deadline.

US private equity firms JC Flowers and Cerberus are among other firms expected to come forward with offers for the beleaguered Newcastle-based bank, which is responsible for about one-in-five mortgages in the UK.

Northern Rock also said that David Baker, Keith Currie and Andy Kuipers were standing down as board directors but would stay with the firm.

At the same time, four non-executive directors, Sir Derek Wanless, Nichola Pease, Adam Fenwick and Rosemary Radcliffe, were stepping down immediately, it added.

Vincent Cable, acting leader of the Liberal Democrats, told BBC News 24 that emergency funding from the government had gone into the bank equivalent to twice the amount of the annual primary school budget.

"It really is a scandal", he said.

Banking run

Northern Rock has been in trouble since getting caught up in the global credit crunch over the summer, which left it unable to borrow money from other banks to fund its business model.

The problem facing Northern Rock was that three-quarters of its funding came from wholesale money markets, and when the global credit crunch took hold, its main source of financing dried up.

If I were a Northern Rock shareholder I would be alarmed

Simply put, banks were so worried about the problems in the global debt market that they stopped lending to each other, making it almost impossible for Northern Rock to keep operating.

As a result, the lender turned to the Bank of England for emergency funding, prompting the run and its current set of problems.

"The new chairman, Bryan Sanderson, is stamping his authority on the board and I think that the message is that the status quo is no longer an option," said John McFall, chairman of the Treasury Select Committee.

Press reports earlier this week claimed that the British taxpayer could still be underwriting up to £6bn worth of loans to the bank until 2010 through emergency funding provided by the Bank of England.

Critics have slated Mr Applegarth for failing to protect the bank from volatility in the global financial markets and for using a business model that took on too much risk.

Northern Rock said that Mr Applegarth will step down from his post once he has helped the lender complete the second phase of its strategic review, which is scheduled for completion no later than the end of January 2008.

"Adam's participation in the next phase of the strategic review is important, not least due to his extensive knowledge of the business and his ability to lead the process during this difficult period," said bank chairman Mr Sanderson.

Future plans

Analysts said that there are a number of options for the bank going forward, ranging from an outright buy-out to a breaking up of the bank's assets.

A consortium led by Richard Branson's Virgin Group on Friday submitted a formal proposal to rescue Northern Rock.

Olivant, a team led by veteran troubleshooter and former Abbey National boss Luqman Arnold, said it had made a detailed proposal to stabilise the bank as a viable business and restore its finances.

"The key to repayment of the Bank of England facility is to stabilise Northern Rock and restore confidence in the bank and its brand," Mr Arnold said.

JC Flowers, meanwhile, has put together a high-profile management team to make their case for taking over the bank stronger, while rival private equity firm Cerberus has also been rumoured to have been scouring Northern Rock's books.

But because any future owner will have to pay back about £24bn of Bank of England loans, analysts said that bids are likely to be low.