Bank Of England To Bail Out British Bank

[cclub75]

Just add the point that right now given the assurances being issued, by both BoE and the Chancellor, the safest bank in the world right now is NR. The moral pressure to pay out to depositors 100% of their losses would be considerable. For what it's worth, this institution's business plan, which as I've noted above is substantially different form the other major banks, made it a high risk target when the credit crunch occurred.

Unfortunately the statements of the BoE contributed to the febrile atmosphere, by making individuals very concerned about this 'bailout' being the 'first in 30 years'. The Fed's approach was to force a number of institutions to come to the discount window, thereby ensuring any subsequent tranche would be less 'news worthy', a ploy which has succeeded, after all at this time NR has not touched the money available to it and yet is being hammered.

You seem to see the whole story as simple "communication problem".

It's rather strange...

My point is : in a confidence crisis, what you propose lead to the exact opposite effect...

To say for instance that the FED was smarter, because it made things "less news worthy"... basically solve nothing. On the contrary.

Countrywide, Northern... seem to be simple communication issues. Funny.

We should not forget the bottom line : we have a "real" real estate bubble with insane prices, insolvency on the rise... Therefore, all businesses (finance, construction) linked to this sector will go down. And the contagion is likely to spread to other sectors. After.

So I don't know if Northern, like you said, is now "the safest bank in the world".

However, what I know is that kind of business are going to hit the dust. The profit party is over.

Now, it's check bill time.

Some people seem to be afraid of it. I personally think it's very healthy. The market must correct its own excess.

The "run" to hide the truth and avoid at all cost a recession, is rather pathetic.

[A_Traveller]

I don't think, with respect, you appreciate what is happening here. This should be a technical matter first and foremost, hence the "safest bank" comment, the bail out term is technically incorrect at this time, it is a liquidity issue which affects NR disproportionately, though in a large part as I have started owing to the exposure created by their business model.

To be clear I am not suggesting that there are not underlying issues which must be addressed, e.g. why the rating agencies reclassified the instruments involved, what are the moral hazard issues herein {and are they being ignored?}, to what degree has over-leverage contributed to this loss of confidence, why were conduits created without traditional financial support and trigger mechanisms, {those that retained these 'traditional' safeguards are still trading} to what degree did this increasingly available commercial paper market drive asset valuations {both within capital markets and beyond}, etc.? However, I do draw a comparison between the, I believe, politically prompted, BoE actions, to a large degree out of sync with statements, {it should be noted this was done without even advising the ECB, which is somewhat strange} and the FED's usage of the discount window.

If the result of this, and other 'issues' in the US and EU, lead to a through review of practices within this environment then that is all well and good.

Regards

[LaoPo]

UK's FSA reiterates it judges Northern Rock solvent

Sat Sep 15, 2007 9:08 PM BST136

LONDON, Sept 15 (Reuters) - Britain's financial watchdog reiterated on Saturday that it considers mortgage bank Northern Rock to be solvent and that problems customers are facing in withdrawing money are not linked to its financial health.

Shares in Northern Rock plunged on Friday, and customers clamoured to withdraw money, after the bank agreed an emergency loan from the Bank of England to cope with a lack of liquidity and high interest rates in money markets.

"The FSA reiterates that it judges Northern Rock to be solvent and that savers can continue to deposit and withdraw funds," the Financial Services Authority (FSA) said in a statement.

"Clearly, there have been some operational problems with queues at some branches and difficulties with the bank's website caused by the unusually high volumes of customers trying to access their accounts as a result of the publicity surrounding Northern Rock.

"These problems are entirely logistical and are in no way related to the bank's solvency or its underlying ability to deliver funds to savers who wish to withdraw."

FSA Chairman Callum McCarthy added: "To be absolutely clear, if we believed that Northern Rock was not solvent,we would not have allowed it to remain open for business."

http://investing.reuters.co.uk/news/articl...-FSA-URGENT.XML

Note: Hope that will ease the unrest a bit, on Monday.

LaoPo

[Journalist]

Just add the point that right now given the assurances being issued, by both BoE and the Chancellor, the safest bank in the world right now is NR. The moral pressure to pay out to depositors 100% of their losses would be considerable.

Regards

I like your well-written assessments.

But its not the safest bank in the world though ! Yes the depositors will be saved In full up to GBP 2000, 90% protection thereafter,

But a bank is about more than depositors.

Its borrowers right now are going to be looking to refinance.

Its trading counterparties, eg interest rate derivatives providers most likely will cut credit lines (they already cut their CP lines as we saw). Financial institution counterparties aren't protected

Its shareholders - after friday's fall - would definitely not agree it is the worlds safest bank !

Last but not least - its staff. Many may lose their jobs here. I am certain they don't feell a sense of safety.

'Nationalising' a bank's funding sources give it no medium term sustainability. BOE isn't going to fund a bank permanently - it never has. It will likely insist this bank's remaining assets (its loan book) are sold. NR did fail the acid test and its hard to see a way back for shareholders.

Edited September 16, 2007 by Journalist

[david96]

In Australia one should expect a recession in the economy in 2008, a tightening of loans for morgages and consumer credit and a slowing of the economy to 2.5%,this will effect those people who are living on credit. If consumers lived within their financial means we would not have these problems. Remember these financial institutions use investors money to loan out to borrowers never their own.

Ask yourself the question how did the Jews become wealthy you might learn something from them.

[pointofview]

In Australia one should expect a recession in the economy in 2008, a tightening of loans for morgages and consumer credit and a slowing of the economy to 2.5%,this will effect those people who are living on credit. If consumers lived within their financial means we would not have these problems. Remember these financial institutions use investors money to loan out to borrowers never their own.

Ask yourself the question how did the Jews become wealthy you might learn something from them.

And which particular jews might you be refering to David? This has come about through irrisponsible investments made by the bank - using investors money. The BOE are really cornered into bailing them out in an attempt to avert a bigger crisis. Although, they are aware this sets a bad president to othere irrisponsible, over paid, bankers.

Ther 24 billion belonging to investors/savers has gone - nothing in the till (cash register for americans).

As you say many people have been living off credit for quite some time now and the party is over.

House prices have been made artificialy sky high by low interest rates and lenders willingness to loan up to 5 times salarys. Even a blind man on a galloping horse could see this coming - it is as if it has been manufactured!

Edited September 16, 2007 by pointofview

[A_Traveller]

A request, though I know it's a busy night, but can we get the two parallel threads merged please. http://www.thaivisa.com/forum/index.php?showtopic=142722

Otherwise we are having cross conversations with no real discussion or progress.

Regards

[backflip]

"Facts -as stated by CEO: they have 24 billion from savers investments, yet over the past 2 days (Friday and Saturday) only 1.5 billion was withdrawn. That means only 1.5 people out of every 24 withdrew their funds - the othere 22.5 in every 24 are holding back. (nerves of steel)"

You have a complete misunderstanding of these statistics. The CEO didn't mention the number of people that withdrew money, only the amount of money that was withdrawn. Let's see: 1.5/24 is approximately 6% of the money was withdrawn. To conclude that 6% of the savers withdrew money is incomprehensible.

[siamamerican]

I'm an exec at US based mortgage lender and have first hand knowledge of NR's situation. I've watched many of our subprime competitors go out of business because they can't raise cash. Some of these companies had solid balance sheets, but if you need a constant flow of cash from outside parties to meet short term obligations, the chances of survival are hampered.. Many companies like the one I work at, loan money and package them into securities or sell the pools to other banks. Investors are concerned about the value of the pool of loans and are only willing to buy the loan pools at discounted pricing if at all.

Things are improving the last over the last week. Countrywide and GMAC both lined up an additional 12 billion each late last week. The issuance of asset backed commercial paper (debt instrument with maturities shorter than 270 days ) is still declining, but the pace last week dropped by 50% from the prior week. A bad situation seems to be getting less bad.

Personally I think we will reach a bottom in the next month or two and the surviving banks will start picking up the pieces. It's nice to work for a bank that has the resources to survive and from what I read, NR will also survive. They have little exposure to subprime loans and eventually an investor or the government will lend them the cash they need. It's is an irrational market at the moment and it would be a shame for a good bank to go under because of the lack of transparency in subprime loans sold to investors.

[LaoPo]

Northern Rock Stock Tumbles Further Amid Run on Bank

Sept. 17 (Bloomberg) -- Northern Rock Plc, the U.K. mortgage lender bailed out by the Bank of England last week, tumbled to a seven-year low in London trading after customers lined up at branches across the country to withdraw their savings.

Shares of Newcastle-based Northern Rock fell 34 percent to 290 pence as of 8:10 a.m. in London, leaving the fourth-largest U.K. mortgage company with a market value of 1.2 billion pounds ($2.4 billion). JPMorgan Chase & Co. analysts cut their price target to 370 pence today. Merrill Lynch & Co. halved its earnings estimate for 2007 and said future profit is ``little more than guesswork.'' Both said the bank may be split up or acquired.

Hundreds of clients ignored assurances from Chief Executive Officer Adam Applegarth and U.K. Chancellor of the Exchequer Alistair Darling that their deposits were secure after the biggest rescue by the central bank in 30 years. Savers removed at least 2 billion pounds ($4 billion), or about 8 percent of Northern Rock's total, since Sept. 14, the British Broadcasting Corp. reported without saying where it got the information.

``Until Northern Rock has either been broken up, in the form of its mortgage debt being taken on by another bank or the company taken over as a whole, the negative effect will continue,'' said Howard Wheeldon, an analyst at BGC Partners, an inter-dealer brokerage in London.

Continues here:

http://www.bloomberg.com/apps/news?pid=206...&refer=home

Bank braced for more withdrawals

Northern Rock bank branches have opened early as anxious customers again look to withdraw money from their accounts.

Bank boss Adam Applegarth said people could withdraw money and that it was "business as usual", while Chancellor Alistair Darling urged for calm.

About £2bn has been withdrawn since Thursday, when the bank applied to the Bank of England for emergency funds.

In Monday morning trading, shares in Northern Rock were down by 32%. Shares in fellow mortgage banks also suffered.

In morning trade in London Northern Rock's shares, which had lost 33% on Friday, fell from 438 pence to 293 pence. Shares in mortgage lenders Alliance & Leicester and Bradford & Bingley were also down, by 14% and 11%.

Continues here:

http://news.bbc.co.uk/2/hi/business/6997765.stm

LaoPo

[intumult]

Sigh. And I have my mortgge with Northern Rock here in the U.K.

Though from what I have read it may not be as bad as has been painted and is in reality expcted to be a temporary glitch and will be resolved in the near future. On saying that I see the share price has plummeted again today (Monday).

[lannarebirth]

Sigh. And I have my mortgge with Northern Rock here in the U.K.

Though from what I have read it may not be as bad as has been painted and is in reality expcted to be a temporary glitch and will be resolved in the near future. On saying that I see the share price has plummeted again today (Monday).

Don't know the first thing about this conpany, save for what I've read here. If it's true their growth has come through acquisition, rather tha organic, incremental growth, the stock plunging is not too surprising. It's a familiar story.. One can look at WCOM as another stellar example of same. Although in that case there was bogus financial reporting involved, which came to light after the stock had already plunged to nearly nothing.

[LaoPo]

Northern Rock shares slide as chiefs push for sale

Financial Times:

Northern Rock shares plunged 24 per cent in early trading on Monday as the mortgage lender and its regulators prepare to try again to arrange a sale.

As depositors continued to withdraw their savings from Northern Rock – with some reported to have begun queuing as early as 4am on Monday – people familiar with the matter said the bank and its advisers were planning a new push to find a “commercial solution” that would allow it to be sold as a going concern.

Northern Rock held talks with Lloyds TSB, the UK’s fifth-biggest bank, as recently as last Monday. Those discussions were undermined by the turmoil in the credit markets and the Bank of England’s reluctance to offer financial support to facilitate a deal, people familiar with the matter said.

However, the central bank on Sunday indicated that the credit line it had provided to Northern Rock would not be removed in the event of a sale. “We have agreed that any bidder would be able to take on the facility for any unexpired term left,” a spokesman said.

Any renewed takeover interest will depend on whether Northern Rock’s business can be stabilised. About £2bn ($4bn) has now been withdrawn by savers. But people close to the bank say the figure – about 8 per cent of total deposits – is lower than initially feared. Sir Callum McCarthy, chairman of UK regulator the Financial Services Authority, and Alistair Darling, Chancellor of the Exchequer, both stressed over the weekend that the bank was solvent.

If no buyers come forward, it seems likely Northern Rock’s business will be gradually wound down, effectively leaving it with a shrinking mortgage book as loans are repaid. Its advisers are thought to have calculated that, in this situation, it would be worth about 180p a share.

The shares fell 104p to 334p on Monday morning. Other bank shares also fell sharply, with Alliance & Leicester down 15 per cent, Bradford & Bingley down 12.7 per cent and HBOS 3.84 per cent lower.

The Bank of England has been stung by criticism that it is providing a bail-out to Northern Rock and wants the terms to be published, so it can demonstrate how tough they are for Northern Rock’s shareholders. The central bank said: “We expect the terms to be disclosed in due course.”

Northern Rock executives spent the weekend trying to ensure the business was functioning, and organising the delivery of sufficient cash for customers to make their withdrawals. They are also seeking to fix the bank’s website, which has been struggling with the high volume of traffic.

From: http://www.ft.com/cms/s/2/39199b78-6489-11...00779fd2ac.html

LaoPo

[LaoPo]

Trading in Northern Rock halted

Sep 17 2007 11:29 AM

London - Trading in shares of Northern Rock was suspended briefly on Monday morning after the stock tumbled more than 30% as the London Stock Exchange opened.

Before trading was suspended at 07:10 GMT, the shares were down 140 pence to 298 pence, on top of a 31% fall on Friday.

Northern Rock, Britain's fifth-largest mortgage lender, issued a profit warning on Friday after the Bank of England agreed to provide it with liquidity.

The British Broadcasting Corporation reported on Sunday that customers had withdrawn nearly £2bn from Northern Bank accounts in recent days.

Treasury Secretary Alistair Darling again sought to assure Northern Rock depositors that their money was safe.

"Whatever happens, people can get their money out of the bank, they don't need to worry about that," Darling said in an interview on GMTV.

'Business as normal'

"The whole reason that we provide support if a bank gets into difficulties, like Northern Rock, is to help it get the money to tide it over these difficulties."

Northern Rock CEO Adam Applegarth refused to give a figure for the scale of the run on the bank, which extended its opening hours to deal with customer demand.

"The way to restore confidence is very simple - it's business as normal, it's allowing customers to do exactly what they want to do," he told BBC radio.

"The customers are perfectly entitled to take out their money. We have got their money, the problem for us is the logistics of getting to them."

http://www.fin24.co.za/articles/default/di...18-1783_2185076

LaoPo

[Carmine6]

Interviews with some customers. Many ended up not withdrawing just yet. There's another article that says as of Sunday even after all the withdrawals, Northern Rock had yet to borrow on the line from the BoE.

http://news.bbc.co.uk/2/hi/uk_news/england/tyne/6994800.stm

Bank customers look for assurances

Northern Rock customers have been queuing outside branches after news it had received an emergency loan from the Bank of England. BBC News' Julie Cush spoke to those outside one branch in Newcastle-upon-Tyne.

Harvey Collings will seek the advice of a financial advisor Northern Rock is urging customers to leave their money where it is. But as the queue grows longer outside its branch in Pilgrim Street, Newcastle the mood is one of suppressed panic. Customers are not quite queuing outside the door, but those waiting report that twice as many cashiers as usual have been drafted in to deal with their queries.

Many customers wait anxiously, and debate whether or not to clear and close their accounts and take their custom elsewhere. Others, unmoved by the news, are just there to pay in cheques and collect their pensions. Chris McGee, 57, a care worker from Sandyford in Newcastle, waits 20 minutes to be seen, but is reassured by staff. My credo is if you cannot afford something, do without.

He says: "I have had a current and savings account with the bank for many years and have, what I consider is a substantial amount of money saved. "I went into the bank with the intention of closing the account, but they assured me that several thousands of pounds in an account were guaranteed and safe. I am still worried, but less so."

Other customers cannot be talked out of taking action so easily and decide to cover themselves in the unlikely event of their money being under threat. Ken Miller, 62, is a retired bakery worker from Slatyford, in Newcastle. He says: "I've been in this morning and given notice that I want to change my savings account and reduce the amount of money in the account so that I'm guaranteed to get it back of anything goes wrong." "People are just stretching themselves too much and borrowing money they cannot afford to pay back - getting banks in trouble."

Harvey Collings, 72, a retired commercial artist from Biddick in Washington, says he is determined not to have a knee-jerk reaction to the news. He is keeping his money where it is for the meantime, but admits losing confidence in the bank, firmly blaming unrealistic borrowing for the situation. He says: "The staff have tried to reassure me, but when this kind of thing happens it does not instil a lot of confidence. In my opinion this situation has arisen because of irresponsible lending." "My credo is if you cannot afford something, do without.

Saver Ann Emmerson is determined not to panic. "I'm leaving my savings with Northern Rock at the moment, but I'll be consulting my financial advisor." Some account holders have been with the bank for decades and say they still have faith in its service.

Nancy Hill, 54, is a home help from Birtley, Gateshead, Tyne and Wear. She says: "I've been with the bank for more than 20 years and have always received a good service. "We have our mortgage with them so I need to think about what I'm going to do." "There were definitely more people in the branch withdrawing money, but I'm going to hang on and see what happens."

Ann Emmerson, 67, a retired clerical worker from south-west Denton in Newcastle, is also determined not to panic and do anything hasty. "I've been in and the staff have not been saying anything about the situation," she says. "I've been a customer for years and have been happy with the service I've received. I'm not going to panic but just see what happens over the next few days."

Edited September 17, 2007 by Carmine6

[sonicdragon]

I think this marks the end of northern rock. The only real solution is a massive equity injection from another bank or a takeover. That's the only way to restore confidence. Talk in the mass media of "emergency loan" and "bail out" only serves to exacerbate the problem, whether or not this is truly just a "liquidity" issue. Other banks must be salivating at the prospect of acquiring NR's UK mortgage portfolio *unless* there is more to this debacle than meets the eye (which would not shock me at all).

[pointofview]

This is being played down. Ques today are huge - stretching for 100s of metres outside branches. Trading of share has stopped.

[LaoPo]

Moody's may change Northern Rock credit rating

LONDON (Reuters) - Moody's Investors Service affirmed its short-term Prime-1 rating on mortgage lender Northern Rock on Monday but placed its long-term investment-grade Aa3 rating on review "direction uncertain".

The ratings action on Northern Rock (NRK.L: Quote, Profile , Research) follows its emergency funding rescue from the Bank of England late last week after the mortgage lender had difficulties raising enough finance in short term wholesale debt markets to meet all maturing liabilities.

Moody's said the agreement with the central bank to raise liquidity as necessary meant that Northern Rock will be able to meet obligations as they fall due. But it said Northern Rock -- Britain's fifth-biggest mortgage lender -- would find it difficult to reduce its reliance on the wholesale market.

"Moody's believes that an evolution of the existing business model is likely to lead to a significant decline in overall profitability going forward," the ratings agency said.

Moody's said it had a stable outlook on its short-term rating.

In placing the long-term Aa3 debt and deposit ratings on "direction uncertain", Moody's said it was highly likely that a buyer emerges to acquire Northern Rock.

Banks including Lloyds TSB (LLOY.L: Quote, Profile , Research) have considered deals, according to industry sources.

"The outcome of the review, which may be either an upgrade or a downgrade, will depend on the financial profile of the acquirer, such a transaction taking place and the revised stand-alone credit profile of Northern Rock under its revised business model," Moody's added.

The statement from Moody's follows downgrades on Northern Rock's long-term credit ratings to A on Friday by both Standard & Poor's and Fitch Ratings after the BoE loan.

http://investing.reuters.co.uk/news/articl...RTHERN-ROCK.xml

LaoPo

[LaoPo]

Northern Rock extends losses, down as much as 40%

LONDON, Sept 17 (Reuters) - Shares in Northern Rock (NRK.L: Quote, Profile , Research) slid further on Monday, down as much as 40 percent as depositors continued to withdraw their cash from the embattled mortgage lender, putting its under further strain.

"As the queues lengthen outside the 70 branches to take their life savings away, which will drop its deposit base dramatically from 24 billion pounds, Northern Rock's share price will remain vulnerable until someone steps up the plate and says mine," David Buik of Cantor Index said in a note.

At 1126 GMT, Northern Rock is the worst performer on the FTSE 100 .FTSE, down 39 percent at 266.75 pence.

A spokesman from the London Stock Exchange said Northern Rock shares were suspended for a few minutes a couple of times on Monday along with nine other stocks to enable any inadvertent trades to be rectified.

http://investing.reuters.co.uk/news/articl...TEND-URGENT.XML

LaoPo

[Naam]

Northern Rock share price today.

[LaoPo]

(Alistair) Darling Says Northern Rock Backed By Bank of England

By Robert Hutton

Sept. 17 (Bloomberg) -- Chancellor of the Exchequer Alistair Darling said deposits at Northern Rock Plc are ``backed by the Bank of England'' as customers queued outside branches of the U.K. mortgage lender to withdraw their savings.

Northern Rock customers are ignoring repeated assurances from Darling and Chief Executive Adam Applegarth that there is no need to withdraw money after the U.K. central bank provided the bank with emergency funding last week.

``If people want to get their money out of the bank they can,'' Darling told BBC Radio 4's ``Today'' program. ``The money is there. It's backed by the Bank of England.''

Note:

Do the people of the UK no longer trust the BoE (still withdrawing their savings from NR )?

Story continues here:

http://www.bloomberg.com/apps/news?pid=206...Y8&refer=uk

LaoPo

[shochu]

The bank of england is a privately owned institution. - much like the fed. If one understands how they work - then you would not have written the many pages of fodder I have just glimpsed over.

If they had to step in - you can bet your house that there is a major crisis brewing.

Will this crisis go away - maybe for now.

[LaoPo]

The bank of england is a privately owned institution. - much like the fed. If one understands how they work - then you would not have written the many pages of fodder I have just glimpsed over.

If they had to step in - you can bet your house that there is a major crisis brewing.

Will this crisis go away - maybe for now.

..Excuse Me...?

I am reporting financial news; no need for you to read if you don't wish to do so.

Northern Rock suffers, Paulson says crisis not over

LONDON (Reuters) - Savers demanded their money back on Monday from the British bank hardest hit by the global credit crisis, while U.S. Treasury Secretary Henry Paulson said financial market turbulence could continue for a while.

Shares in UK mortgage lender Northern Rock (NRK.L: Quote, Profile , Research) plunged further as customers queued for a third day to withdraw funds, despite assurances their money was safe after its rescue on Friday by emergency Bank of England funding.

Northern Rock, once a darling of the bank sector for its innovative use of financial markets for funding, has little exposure to high-risk debt. But it got into trouble when global worries about the widespread repackaging of poor-quality debt made banks reluctant to lend to each other in August.

The Dutch central bank (DNB) said on Monday the credit crunch may force banks around the world to take back up to 1.2 trillion euros ($1.66 trillion) in debt onto their balance sheets if investors are unable to refinance it, but noted that would be "in an extreme scenario".

Paulson, visiting Paris, cautioned: "It will take a while to work through the turbulence in capital markets."

However he added: "We're doing so against a backdrop of a strong global economy."

Story continues here:

http://today.reuters.com/news/articleinves...OMY-CREDITc.xml

LaoPo

[Journalist]

The bank of england is a privately owned institution. - much like the fed. If one understands how they work - then you would not have written the many pages of fodder I have just glimpsed over.

If they had to step in - you can bet your house that there is a major crisis brewing.

Will this crisis go away - maybe for now.

Pity you didn't read what we said, instead of just being insulting - you might have learned something.

If you understood the BOE's status you wouldn't define a state-controlled central bank as a 'privately owned institution'. I don't think i've ever heard a more sloppy definition of a central bank.

Edited September 17, 2007 by Journalist

[pointofview]

World wide credit crunch, recession, depresion, WWIII.

[pointofview]

The bank of england is a privately owned institution. - much like the fed. If one understands how they work - then you would not have written the many pages of fodder I have just glimpsed over.

If they had to step in - you can bet your house that there is a major crisis brewing.

Will this crisis go away - maybe for now.

..Excuse Me...?

I am reporting financial news; no need for you to read if you don't wish to do so.

Northern Rock suffers, Paulson says crisis not over

LONDON (Reuters) - Savers demanded their money back on Monday from the British bank hardest hit by the global credit crisis, while U.S. Treasury Secretary Henry Paulson said financial market turbulence could continue for a while.

Shares in UK mortgage lender Northern Rock (NRK.L: Quote, Profile , Research) plunged further as customers queued for a third day to withdraw funds, despite assurances their money was safe after its rescue on Friday by emergency Bank of England funding.

Northern Rock, once a darling of the bank sector for its innovative use of financial markets for funding, has little exposure to high-risk debt. But it got into trouble when global worries about the widespread repackaging of poor-quality debt made banks reluctant to lend to each other in August.

The Dutch central bank (DNB) said on Monday the credit crunch may force banks around the world to take back up to 1.2 trillion euros ($1.66 trillion) in debt onto their balance sheets if investors are unable to refinance it, but noted that would be "in an extreme scenario".

Paulson, visiting Paris, cautioned: "It will take a while to work through the turbulence in capital markets."

However he added: "We're doing so against a backdrop of a strong global economy."

Story continues here:

http://today.reuters.com/news/articleinves...OMY-CREDITc.xml

LaoPo

All very interesting and informative - if you believe what is being said. Wasnt Alister Darling sacked from a leading government post a few years ago over some scandal. and now people are supposed to believe his assurances.

Who would trust a man called darling who dyes his eyebrows black

Edited September 17, 2007 by pointofview

[TBWG]

Who would trust a man called darling who dyes his eyebrows black

Well everything is hunky dory now, Darling has guaranteed the financial stability of Northern Rock.

Isn't it lucky we trust everything politicians say! I,ll now file my NR shares along with Railtrack and Marconi

A guarantee from a politician is like a vote of confidence from the board for a football manager

TBWG

PS Had I any savings in NR I would definitely withdraw them now.

Northern Rock deposits guaranteed

Full special report on the global credit crunch

The government has said that it will guarantee all deposits held by the embattled Northern Rock bank.

The pledge by Chancellor Alistair Darling is an attempt to reinforce confidence in the beleaguered firm.

More than £2bn has been withdrawn by customers since the bank applied for emergency funding from the Bank of England last week.

Northern Rock shares were 40% down at one point on Monday and ended 35.4% lower as fears grew for its future.

Banks are already covered by the Financial Services Compensation Scheme which already protects 100% of the first £2,000 in any bank account and 90% percent of the next £33,000 - giving a maximum payout of £31,700 if a bank did go bust.

The chancellor reiterated comments made by the Treasury and financial services watchdog the FSA that Northern Rock is a solvent business.

However these reassurances have not stopped anxious savers from queuing outside branches of the bank to make withdrawals.

Mr Darling said that people could continue to take money out of the bank, but that if they choose to leave it there it would be secure.

The decision to guarantee all deposits came, he said, because he wanted "to put the matter beyond doubt" and "because of the importance I place on maintaining a stable banking system and public confidence in it".

Mr Darling's announcement came after the chancellor and Prime Minister Gordon Brown met US Treasury Secretary Hank Paulson to discuss the growing turmoil in world financial markets.

NORTHERN ROCK CRISIS

Bank needed £1.6bn from Bank of England to stay afloat

Had been financing lending by borrowing on credit markets

Fears about exposure to bad loans in the US dried up credit

US economy expected to slow as bad loans hit housing market

Uncertain how much exposure other banks have to bad debt

Northern Rock has booked advertisements in Tuesday's national newspapers and they will read: "Your money is safe with us. If you want some or all of it back you will get it back. But if it stays with us it is secure.

"These have been troubled times but Northern Rock will prevail, we will not let you down."

The firm says that it has not used any of the Bank facility for funds offered to it.

Growing turmoil

In London, Northern Rock's shares, which had lost 32% on Friday, fell from 438 pence to 282.75 pence.

Shares in other mortgage banks also suffered, with Alliance & Leicester slumping in late trading to finish 31.3% lower. Bradford & Bingley shares were also down, losing 15.4%.

It is understood Northern Rock was almost sold to rival bank Lloyds TSB over the summer.

However, the deal fell through because of the difficulty of borrowing money in the current financial climate.

The lower the Northern Rock share falls the easier it would be for a rival to take it over.

Experts at Lehman Brothers said in a statement: "Any interested buyer appears to be in a strong position over price."

As a staff member of Northern Rock I would just like to say that there is no need to panic - the Bank of England and all other authorities back Northern Rock 110%

Northern Rock branches had opened at 0800 BST on Monday - an hour earlier than usual.

Chief executive Adam Applegarth told the BBC he could not discuss possible takeovers, nor would he confirm the exact amount of cash withdrawn from bank branches since Friday.

The BBC's business editor Robert Peston said the £2bn withdrawn - which represents about 8% of the £24bn deposits it held on Thursday - was actually less than the mortgage lender and officials at the Bank of England and Financial Services Authority had feared.

However it cannot be certain whether much more will be withdrawn in the coming days, especially from holders of Northern Rock's postal accounts - which contain about £10bn.

Not all Northern Rock branches have seen big queues on Monday. No one at all has been queuing in Belfast, Bournemouth, or Swindon.

BBC business editor Robert Peston

Much depends on what happens to Northern Rock over the coming days...

Robert Peston

BBC Business Editor

Read Robert Peston's blog

Rock's online account woes

Cameron joins Rock row

Northern Rock's share price

The BBC has learned that Lloyds TSB and RSB were very interested in acquiring the beleaguered firm.

However, they were concerned about doing such a big deal amid turmoil in money markets and when it was difficult and expensive to raise money from other banks and financial institutions.

Mr Darling said the emergency lending facility offered to Northern Rock would be transferred to any new owner.

However once the facility expires - and the Bank will not make the expiry date public - there is no guarantee it would be extended for the new owner.

Northern Rock has struggled to raise money to finance its lending ever since money markets seized up over the summer.

Unlike most banks, which get their money from customers making deposits into savings accounts, Northern Rock is built around its mortgage business.

It raises most of the money which it provides for mortgages by borrowing from banks and other financial institutions.

WHAT'S HAPPENING AT NORTHERN ROCK?

graphic showing Northern Rock money flows

Mortgage lending Northern Rock lends a large amount for mortgages, and finances this with money from banks and savers

Savings Northern Rock receives a relatively small amount of money from savers

Money markets Have stopped lending money to Northern Rock due to the crisis in the US sub-prime mortgage market

Bank of England Steps into the breach to give Northern Rock an emergency loan

Edited September 17, 2007 by TBWG

[LaoPo]

Posted this on: "UK on the verge of a financial crisis?', as well:

The Next Northern Rock?

Alliance & Leicester & Bradford & Bingley

LONDON - When trouble comes, it comes in pairs. News of British lender Northern Rock's free-falling share price may be foremost in investors' minds at the moment, but it wasn't the only U.K. bank to plummet more than 30% on Monday. Alliance & Leicester, which also relies on the wholesale money markets to fund its activities, crashed as shareholders raced for the exits.

Shares in Narborough-based Alliance & Leicester (other-otc: AANCF - news - people ) closed down 31.3%, falling 273 pence ($5.44) to 600 pence ($11.97) in the dying minutes of London trading on Monday. The stock had remained relatively stable at around 750 pence ($14.96) throughout the day, but it plunged dramatically in the last 20 minutes before the market closed.

It is unclear what sparked the last-minute sell-off. But one thing is clear: Alliance & Leicester is being tarred with the same brush as Northern Rock (other-otc: NHRKF - news - people ) the ailing mortgage lender that sought a lifeline from the Bank of England after a crisis in credit confidence meant it could not even borrow from fellow banks.

The bank's official line was strictly "business as usual," though it may be protesting too much.

"Current conditions in the funding and liquidity markets have had no material impact on either profits or franchise growth," said Geoff Seymour, a spokesman for the Alliance & Leicester. "Furthermore, we have not approached the Bank of England for assistance. We have a very different business model from Northern Rock and our funding is not overly reliant on wholesale markets. Our customers need have no concern for market conditions."

Alliance & Leicester receives over 50% of its funding from the inter-bank money markets, though not to the extent of Northern Rock, which closed down 35.5% to 282.75 pence ($5.64) on Monday. Another bank with a similar business model is Bradford & Bingley (other-otc: BDBYF - news - people ), which fell 15.4% to 279 pence ($5.56).

The current climate of investor conservatism in Europe has led to a fear of securities that carry even moderate forms of risk, which in turn has affected banks that previously relied on asset-backed securities funds or short-term commercial paper for credit. The eventual drying up of these lines of credit has meant that banks are far less willing to lend to one another, a problem for institutions that rely heavily on the money markets for funding.

The only ones likely to gain from all the turmoil are short-sellers, who have been steadily building up a portfolio of financial stocks since earlier this year. Canny traders who borrowed shares in Northern Rock when it issued its first profit warning back in June are making a packet out of selling them on during the current free-fall.

http://www.forbes.com/markets/2007/09/17/a...7markets19.html

LaoPo

Edited September 17, 2007 by LaoPo

[sonicdragon]

I wonder what A&L's official response the the question of "why are you offering offshore depositors a rate of up to 45bp above the current base rate ?" would be. It won't take much for comparisons between A&L and NR to become a self fullfilling prophecy.

[chiang mai]

I wonder what A&L's official response the the question of "why are you offering offshore depositors a rate of up to 45bp above the current base rate ?" would be. It won't take much for comparisons between A&L and NR to become a self fullfilling prophecy.

In fact some offshore UK banks are now offering a premium of up to 1.10bp over base including Nationwide, International Bank of Scotland and A&L and these accounts will be of prime interest to Thai based UK ex-pats because of their tax free status and high returns. I invest in products with these lenders and take the view that if names as strong as the ones I mention go under then everything is going to collapse and there will be no need for money so why worry.