CITY watchdogs have handed a record fine and life ban to the former deputy chief executive of Northern Rock – as it lifted the lid on staff manipulation of mortgage arrears figures at the lender.

David Baker was fined £504,000 by the Financial Services Authority and banned from working in any regulated activity after it found that he misled shareholders and analysts by quoting inaccurate data.

The FSA also handed a £140,000 fine to Northern Rock’s former managing credit director Richard Barclay and banned him for failing to ensure the accuracy of the figures.

Northern Rock fell into public ownership in early 2008 after it was forced to seek emergency funding from the Bank of England and suffered the first run on a UK bank for 150 years.

The FSA found that staff at the lender’s debt management unit felt “under pressure to maintain the firm’s reported arrears and property possession figures” at half of the Council of Mortgage Lender average.

To do this, the unit developed a practice of removing those loans that were subject to a possession order – but had not yet been repossessed – from both the arrears data and the possession numbers.

Another tactic to doctor the number of impaired loans “led to the mortgage arrears being misreported to be significantly less than they should have been”.

In January, 2007, Mr Baker discovered that 1,917 loans had dropped out of the figures because of the possession order manipulation.

But he not tell the firm’s chief executive, Adam Applegarth, or correct the numbers reported in the firm’s annual report.

Mr Baker said he took that decision on compassionate grounds to allow the DMU to rectify the error over a six month period because Mr Barclay had suffered serious health problems.

He said he accepted the FSA ruling with great sadness, adding: “I made an error of judgement and I regret it.”