The following entry is a record in the “Catalogue of Catastrophe” – a list of failed and troubled projects from around the world.
Northern Rock Asset Management – UK
Date : Dec 2012
Cost : £270M
Sometimes, the devil really is in the details!
With a history dating back to the 1850’s, Northern Rock Bank became part of the international news story when in late 2007 the company was engulfed in the sub-prime mortgage debacle. Triggering a “bank-run”, panicked customers waited in lines outside the bank trying to withdraw their savings. To stem the panic the British government stepped in and nationalized the bank so that it could be financially stabilized. Splitting the bank into two halves (the financially viable “good” part and the toxic-loan laden “bad” part) the British Government assumed control of the management of the organization.
Having successfully resold the financially viable “good” bank interests to Sir Richard Branson’s Virgin Group in 2011, the British government retains ownership of the “bad” part – Northern Rock Asset Management (NRAM). In Dec 2012, government officials had to admit that loans management by NRAM that dated to the time of the nationalization process contained paperwork errors. The failure to print the original amount of money loaned on the statements given to customers violated the law and as such, legally customers were not required to pay interest payments on the loans. The paperwork errors amount to a total of £270M further increasing the loses the government has incurred as a result of the sub-prime debacle.
Contributing factors as reported in the press:
Lack of due diligence. Ineffective quality control processes.
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