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What a Crocking Surprise!

Taxpayers\’ money tied up in Northern Rock is more at risk than first thought, the nationalised lender\’s chairman, Ron Sandler, has conceded, as the credit crisis threatens to undermine its restructuring.

Appearing before the Treasury Select Committee yesterday, Mr Sandler admitted: "If house prices decline 5pc, 10pc, 15pc, it would certainly put a great deal of stress on how we would deliver the plan. I don\’t want to pretend it is without risk and I don\’t think we should take anything for granted at this stage.

Really now, who couldn\’t see that one coming?

And of course the Crock also faces the problem of adverse selection. To repay it needs to shrink its loan book….but if lenders are leaving the market, then those that leave the Crock for others are more likely to be the better risks, leaving Northern with the appalling risks.

Mr Sandler added: "There is a risk of adverse selection. Those customers who represent a better credit risk will get mortgages elsewhere. We do expect it will increase the riskiness of our book." He accepted that the bank may have to create a special category of mortgage "in extremis" for highly-indebted clients.

We\’re not going to know for some years how this plays out but all of the money back looks increasingly unlikely.

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