Read
the full statement from Northern Rock
Read
the Treasury statement in full
Long queues formed outside branches of Northern Rock today as anxious
customers waited to withdraw savings after the bank was forced to seek an
emergency bailout from the Bank of England.
Savers went in person to Northern Rock's branches to withdraw their money,
after facing difficulties contacting the bank on the phone or via the
internet.
Customers who manage their money on the internet were blocked from seeing
details of their account, including statements, when they tried to log in.
This morning Northern Rock gave warning that its profits would fall by 23 per
cent, and its shares have dropped by nearly a quarter in value, after
problems in the global credit markets forced it to ask for emergency
financial support.
William Gough, 75, arriving at a Northern Rock branch in Central London this
morning, said he did not believe the bank’s assurances that his savings were
safe and intended to withdraw his funds.
“They’re telling us not to worry but we’ve heard it before, with Marconi”, he
said, referring to the collapse of the telecoms equipment firm in 2002.
“At the time I put the money in I wouldn’t have imagined something like this
would happen,” Mr Gough said while joining the back of a 40-strong queue.
Customers queued for up to an hour and, as news of the Bank of England bailout
spread, the throng inside the branch was so dense that some struggled to
open the door.
Gary Diamond beat the crowd by arriving early.
“I came down here to withdraw my funds because I’m concerned that Northern
Rock are not still going to be in existence,” he said after closing his
accounts.
He added that there was a danger that if others followed suit it could worsen
Northern Rock’s position.
“But I don’t want to be the mug left without my savings,” he said.
Another customer, an elderly woman, said that she could not afford to take any
chances.
“It’s my life savings we are talking about, my pension," she
said. "I’ll have nothing left if they go under.”
Barry Hall left a Northern Rock branch this morning after transferring money,
saying he felt relieved that his savings were now safe.
He said: “I’m coming up to retirement age and don’t want to be left with
nothing. I’ve withdrawn everything. If I was younger I would try to ride
it.”
A minority of customers said they were not concerned about the stability of
the bank but had been forced to act over fears of a bank run.
Paul De Lamare, a 46-year-old consultant, said: “I’m not worried about the
bonds. I don’t think the Bank of England would allow anything to happen. But
I’m just trying to avoid getting caught short, so I’ve taken out cash.”
Shares
in Northern Rock tumbled by 24.57 per cent to 157p today, wiping £1.6
billion of the company's market value.
The fall came after the Newcastle-based group said that full-year pre-tax
profits would be between £500 million and £540 million — down from £588
million last year and against an average City forecast of £647 million for
this year.
Northern Rock confirmed that the Bank of England had agreed to provide it with
an emergency credit facility in the wake of the present credit market
turmoil, but insisted that it was still a viable business.
It is also understood two financial institutions have inquired about launching
a rescue offer for Northern Rock.
While the Bank of England and the Financial Services Authority (FSA) are not
actively pushing for a takeover, it is believed that they would look
positively on any strong institution prepared to take on the lender.
Adam
Applegarth, the Northern Rock chief executive, said that the business
remained sound but had suffered from the global breakdown in lending between
banks.
He said that the bank had not yet needed to make use of the facility but had
sought approval after it became clear that jitters in the credit market had
not subsided in September, as had been expected.
Although Northern Rock is unable to reveal how much it can borrow, or the
penalty rate at which it can do so, Mr Applegarth said that it was “clearly
a substantial amount”.
Banks began to encounter liquidity issues at the beginning of August, when
they stopped lending to one another amid fears that their loans would not be
paid back.
Those problems were expected to subside at the beginning of this month but had
not done so, prompting the action by Northern Rock.
“I can’t see when the global liquidity freeze is going to end,” Mr Applegarth
said today, adding that other banks could be forced to take similar action.
“This is a global squeeze; it is not Northern Rock-specific," he
said. "It must be difficult for other banks, too.”
Northern Rock’s statement assumes that the global liquidity problems in the
banking sector will continue until the end of the year.
Mr Applegarth also gave warning that the continuing problems will have a
direct effect on homeowners.
“I would expect to see mortgage customers paying more for their mortgages,” he
said.
Asked what the Bank of England facility means for Northern Rock depositers, he
said: "If I was a depositer, knowing I have the Bank of England behind
me is probably the safest place to be."
In a rare move, the Bank of England agreed yesterday to throw Northern Rock a
lifeline and become the “lender of last resort”, effectively agreeing the
first bailout of a British bank since money markets sank into crisis over
the summer.
Alistair Darling, the Chancellor, confirmed
today that he had authorised support for Northern Rock, on recommendations
from Mervyn King, the Governor of the Bank of England, and the FSA.
Mr Darling said that the FSA had concluded that Northern Rock remained
solvent, exceeded its regulatory capital requirement and had a good-quality
loan book.
He said: "The decision to provide a liquidity support facility to
Northern Rock reflects the difficulties it has had in accessing longer-term
funding and the mortgage securitisation market, on which Northern Rock is
particularly reliant."
He told BBC Radio 4's Today programme: "Banks do have money ...
there is not a shortage of money in the system, but ... they're reluctant to
lend to each other."
He went on to defend the tripartite agreement between the Government, the FSA
and the Bank of England to provide the support facility, saying: "It’s
the right thing to do because it’s in everybody’s interests that we have a
stable banking system, and that is what we’ve got."
Lehman Brothers, which entered an agreement with Northern Rock in July to
underwrite mortgages sold under the Northern Rock brand, said that it was
not affected by the announcement today.
Stuck
in a queue outside a Northern Rock branch? Send us your photos
I wonder how many of the people slamming Northern Rock investors for panicking actually have investments there?
Our life savings of around £100k are in Northern Rock, if the worst came to the worst, we could get back less than a third under the Financial Services compensation Scheme.
The government "guaranteed" pensions.....we all know what happened there.
SR, London,
Much as I do not want to panic .My savings in a NR bond represent all my savings and as a pensioner I rely on these funds for all the little extras in life. I have calculated that if I withdraw my money, pay the penalty for early withdrawal and reinvest at a much better current rate with another bank it will only cost me less than £200. If I leave the money in NR and they go bankrupt even with the guarantee it will cost me about £1400. What would you do! If NR offered a loyalty bonus for savers to stay they might stop the panic. I have been loyal to NR why haven't they been loyal to me.
Rodney , Christchurch, Dorset
There may be a silver lining to this. There are two major problems with the mortgage business in the UK.
1. Firstly I have watched in Northern Ireland while Banks like Northern Rock gave speculative investors a 'one way bet' on domestic house prices. If investors did not mortgage 100% of purchase costs at time of purchase they quickly remortgaged when prices rost to 100% of what they paid - leaving the lender with the complete risk if house prices decline - if prices rise they pocket the profit - if prices fall they return the keys and walk away.
2. Banks only gave investors a 'one way bet' because they packaged the mortgages into bonds and sold the risk to institutions who did not know the full extent of the risk they were purchasing.
In future those who lend are more likely to either have to hold on to the risk or pay a more realistic price if they sell the risk. Perhaps those who simply need to purchase a house to live in may in the future have to pay less as a result .
R Black, Northern Ireland,
I have to date not panicked but have written to Mr Applegarth saying that my confidence in online banking has been severely dented by not being able to get to my account, not being explicitly told why, plus help line numbers being engaged. I have told Mr Applegarth that if the online and helpline facilities are not completely up and running by the end of this week I will definitely close my account on the basis that it is inoperable. I will most likely then move to Brafdord and Bingley which offer a better branch based rate of interest 6.31% in place of 6.13%, albeit for a six month term rather than at 30 days notice. K.M.Breton Otley
G.D& K.M.Breton, Otley , West Yorks UK
I would withdraw all my cash if I was a customer. Why? Remember a few years ago and the soothing words eminating from the Equitable Life when they were having difficulties? This was followed, very promptly, by punitive exit charges being imposed on those who attempted to withdraw their money. Once bitten, twice shy?
Steve, Preston, UK
BOE Does not have to please share holders ? So it is ok to use taxpayers money, They can not complain,can they?
DIPAK, leicester, uk
So, if NRK is so "solvent" then why have the other banks stopped lending it cash. The public are not stupid.
Prof. Pat Pending, Berks,
Is this the free market economy that we in the West so want the rest of the world to emulate?
sanjay p, cambridge, uk
Clearly Northern Rock is at severe risk. If it were not at severe risk there would be no need for the government to intervene. What reason would there be for keeping one's assets with an at risk provider when one can readily move them to one that is not at risk?
Chris, Welwyn, UK
Its like a frontier town and there's a run on at the bank. Only this time the Cowboys are those sub-prime mortgage lenders in the US and the Bandits are the banks who have made billions from buying and selling the debt on til nobody knows where its all gone. Yee haa, I'm off to pan for gold!
Jamie, Glasgow,
The Bank will only collapse if all its customers withdraw all their funds. If so - the media will have a lot to answer for - they understand exactly what position Northern Rock was in but chose to take the big-headline route rather than playing it for what it was actually worth.
NR borrowed the same amount they usually do on a nightly basis but this time their usual lenders were not available so they had to turn to a more expensive option. A bit more expense on the P&L but nothing to be concerned about in the long term.
Now if it collapses we will have serious consquences and potential job losses for what? A few headlines? I think GMTV was the worst offender this morning - practically begging their expert to say it was a disaster as he was trying to provide calm and reason.
Mitch, London, UK
Yesterday, the chancellor said there would be no bail out of banks. Today he bailed out a bank.
Well done, Darling.
Rick, London, England
All the financial nonspeak is nonsense ,when your brand is dead and this brand is totally dead there should be a run on the bank.Someone who didn't push credit on to people unable to afford it will buy out this shell and cheap mortgages will be history.The similarity with pushing drugs is incredible.These Directors have made millions with a business model that uses the most vunerable elements of our society to generate profit for themselves.The bubble has burst but they will survive with millions.If something seems too good to be true it usually is , grow up.
Nigel, Hertford, UK
Quote from above - 'Alistair Darling, the Chancellor, confirmed today that he had authorised support for Northern Rock, on recommendations from Mervyn King, the Governor of the Bank of England, and the FSA.'
If the BoE is indenpendent why did A Darling have to 'authorise support?'
Iain, Northampton, Northants
I agree that greedy bankers deserve everything they get. But if a major insitution like NR is allowed to go down and people lose their savings or their houses then confidence in UK banking will plummet.
There seems little point investing for the future or sinking money into pensions if we cant trust the banks. Should we not expect government to do more to regulate these people to protect our hard earned money?
Martin, Exeter
Martin, Exeter, UK
the media are being quite irresponsible in their reporting of whats is going on and inciting panic which could lead to a genuine run on the bank.
Savers should be aware that their savings are protected by the FSA.
simon mawdsley, london,
Have these people never seen 'It's a Wonderful Life ' ???
kirk, Rotherham , UK
I agree with Brian Seals. Greedly banks and greedy buy to let landlords have forced up the price of house to ridiculous levels. A 50% correction in house prices would not go amiss. Also why bail out Northern Rock, I didn't see the BOE rushing to the aid of Marconi a few years ago?
Peter, London, UK
Any bets on Barclays being the next in line?
Interlocutor, shenzhen, china
My husband still thinks Northern Rock " rock solid" as we had a mortgage with them for almost 40 years and he doesn't see what all the panic is about.
However, we have just read that in the event of any bank going bust "the pay out is apparently just 100 per cent of the first £2,000 in savings and 90 per cent of the next £33,000 which means for instance that if you have £50,000 in savings then total compensation guaranteed will only be £31,700."
I've no doubt that NR will make a full recovery, but it has been a wake up call for us as we deposited all our savings with NR. As a precaution we now intend distributing the majority of our savings into other accounts elsewhere rather than "putting all our eggs in one basket".
Ethel, Tyneside, UK
it's just as well if they disappear from the face of the earth, wiping out my overdraft and my mortgage details once and for all. I feel sorry for the people caught up in this with savings but I do not feel sorry for the banks. They make record profits after record profits every year and they tell us they have no money???
John, London,
By granting the Bank of England independence in 1997, giving them an inflation target of 2% which bears no connection to reality, Gordon Brown has sown the seeds of utter delusion. How many times did Brown fool everyone into believing his mantra ' No booms, no busts' whilst approving a debt-fuelled economic expansion ?
Now it is all unravelling spectacularly; this is the start of Labour's very own 'Black Wednesday' and once again it will cost the taxpayers very dearly.
At this very moment Brown and co. will be looking desperately for scapegots.
Rick, London, England
Is it panic when a bank is in trouble and you take your money out of it, or is it just prudence?
Frank Upton, Solihull,
why the profits warning if this is just a funding glitch? so the "real economy" is in trouble.
paul, london,
Spend, spend, spend, spend....on credit, credit, credit, credit.
The time has come to pay, pay, pay, pay.
Booooooom on credit and now bust in Newcastle.
Subprime this and self-cert that...ha, ha, ha, ha.
JL, bristol,
can we really trust these people with our money,endowment policies were sold as the best thing since sliced bread, the great pension rip off and now we are hearing banks borrowing money in this way.i think the british public will panic at this latest news and start withdrawing their savings.
John Waller, Stockton-on-tees, UK
Have we seen a list of all the Banks who have visited the Fed window or the BofE ? No, and the reason Northern Rock is hitting the headlines is because it serves the BofE, other banks and lenders to instill fear in the public. Have you noticed letters from your Bank coming through the post recently explaining why your charges are RISING? This supposed credit crisis is just an opportunity to keep rates artificially high and for your Bank to levy bigger charges. Sub Prime represents only 4% of US mortgages and lets not forget the bond/debt holders will still be left with a property at the end of it? Misrepresentation of the scale of this problem by the financial markets is designed to remove money from your pocket, create volatility and profit potential for the very same people who caused this problem in the first place.
Michael, Lincoln, UK
You know the British economy has hit rock bottom when one of things of which Britain could be justifiably be proud - the good old building societies - have been trashed by a bunch of privateers and asset strippers. The Northern Rock board and senior management, which has been entirely responsible for reducing the institution to its knees through reckless borrowing, should take an instant cut in pay and be required to pay back the last three years bonuses. Unfair? Ask the blameless mortgage customers who will have to stump up the punitive borrowing charges imposed by the Bank of England.
Frank, London, UK
the chances of northern rock surviving will be greatly enhanced if savers do not panic and indirectly cause a bank run and thus affecting other banking institutions.
ltsao, london,
Given that the managers are being paid many hundreds of thousands of pounds per year, could perhaps, they not have seen this coming?
Name Withheld, quimper, france
In a rare move....Not quite as rare perhaps ? as TOL reported on 3 September "... Barclays borrows £1.6 billion from the Bank of England’s credit facility – the second time in August that the high street bank sought emergency funding from the lender of last resort...".
£540million profit - quite like to experience that sort of crisis myself !
Hadge, Manchester, England
I suggest those rushing to take out their loans go and rent a copy of the film 'Its a wonderful life' it should put it all in perspective!
jo, london,
I understand the anxiety of the banks customers terrified will these promises of stability be changed at a moments notice. It reminds me of a number of companies who until the last moment when they knew things were going down still took orders and deposits and ruined me financially and mentally. I truly feel the northern rock are doing there best to stabalise this and more than likely will not go under, but its a risk the small investor and average joe publiic cannot tolerate. I think more customers would have been reasured if the web site access had not crashed. Some sites are rebuking these people cueing up and stating this could worsen the problem, but I understand its the lack of transparancy in a company that is enough to cause collapse. when banks have plenty of money, they ring up offering loans and in my experience watching a friend go for a loan of 1000 and come out with 3500 he did not want, I lose sympathy and we are called high riskt, silly banks, but wish them well.
gayle, luton, england
once again Panic kicks in causing the chaos, panic then sets in further causing the chaos to deepen. and right on time the whole pack of cards collapses. and the ones who suffer will not just be the guilty parties.
I seem to remember my basic economics suggesting an equilibrium, but sadly it seems human nature in the form of greed and panic will cause a stable equilibrium economy to never happen.
guess that means we may as well not bother paying off the credit card, and blow it all on champagne, the boom will be back in a couple of years!
seems an odd way to go about things
Ben, folkestone, uk
Nice to hear Mr Daring is taking as much responsibility as he can shoulder for the crisis and the decision to bail out Northern Rock ...
"Alistair Darling, the Chancellor, confirmed today that he had authorised support for Northern Rock, on recommendations from Mervyn King, the Governor of the Bank of England, and the FSA. "
Such a brave Chancellor to right up there with the decision makers.
Edwin Thornber, Bucharest,
If Mr Alistair Darling fells so safe with Northern Rock, why does'nt he convince us by putting his enomours wealth at the bank eh?
All banks have over these years been extremely greedy, with the blessing of both the Bank of England and the Chancellor. Yes, be it Tory till '97 or Labour now, greed has been the rule of the day for banks and their credit card subsidaries. And they have got away with murder, in some real sad cases, that was exactly what some banks have done pushing some borrowers to their death.
Remember BCCI and Barings and dont belive the Bank of England.
Take your money from Northern Rock and RUN !
george, london, uk
The Northern Rock can't find 'refinancing for maturing liabilities'. In English that means it can't pay it's debts and can't find anyone daft enough to lend it the money to do so. It's fallen behind with it's mortgage payments hasn't it? Better send it a letter threatening it with repossession hadn't we? There Adam my boy, not nice is it? How many house repossession notices have you sent out this year? And all the time you were the worst defaulter. The most spectacular defaulter in the country as it turns out!
eric campbell, harrogate, uk
No - this is not a case of bank greed, but of systemic failure. The London Inter Bank Offered Rate is now at a prohibitively high level, which means banks are unable to lend one another money in the usual manner. This is why Northern Rock is in trouble - it simply cannot access the required funds, hence the BoE bailout. This has got nothing to do with greed on the part of Northern Rock or any inappropriate behaviour on their part, but instead a sudden change in City lending practices. The real villains of the piece? Those fools willing to invest money in derivatives that they did not fully understand.
Selwyn, The City,
there is not crisis .. it is just a financial move to fund long term- planning as liquidity is poor. Bank is solid
I mean the bank has still made pre tax profit of £500 ... That s enough to cover all your savings
marco, London,
Selfish people, by panic removing their savings they're ensuring it does go under and take others' savings with it.
Adam, Sheffield,
do we still have to pay our mortgage ?
mr abdul, batley, u.k.
I fear its the end of 'cheap' money. The knock-on effect will be felt throughout the economy. If people cannot raise credit, who's going to buy property, cars , holidays etc., and the fallout from this will hit employment big time.
If you've got a parachute in the cupboard, get it strapped on.
Gerald Rickard, Lakenheath, UK
The Banks have never had it so good, showing huge profits.
Why bail out the greedier amongst them?
Time the housing market fell to a realistic level, where first time buyers are not way over the top with debt they cannot possibly manage.
Brian Seals, Scarborough, Nth Yorks,
with the concerns of all readers no doubt, how will the northern rock situation affect other banks and savers investments?
is it a case of the big banks and hedge funds being greedy rather than being cautious and making a steady improvment in profit?
john m, nottingham, uk