Anger as Northern Rock offers dividends

25 September 2007

Northern Rock came under more criticism yesterday after announcing that it intends to pay shareholders a dividend of almost $120 million.

Michael Fallon, the deputy chairman of the Treasury Select Committee, told City AM: "I am surprised they intend to make this payment, given the way that the Financial Services Authority and the Bank of England relaxed the balance sheet rules and made loans to enable them to continue trading."

Adam Applegarth, the chief executive of the cash-strapped bank, is due to appear in front of the committee to explain the crisis and why Northern Rock is the first bank to have run on its finances in 140 years.

The bank asked for about $6 billion of funding last week from the central bank and the move to pay investors in October comes as a shock.

"They have got a lot of explaining to do about their dividend policy. We also want to know how the bank could capture so large a share of the mortgage market so briefly, with no alternatives to such heavy borrowing on the wholesale market."

Sources close to the bank told the newspaper that the decision may be reviewed.

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