Northern Rock

Nothing more to say really,

Another huge blow to confidence !

What’s this?

Breaking news on BBC News 24, NR has just gone running to the BOE as a ‘Lender Of Last Resort’

Lovely phrase that :-/

One of the UK’s largest mortgage lenders, the Northern Rock, is applying to the Bank of England for emergency financial support, the BBC has learned.

However this does not mean that the bank is in danger of going bust, the BBC Business Editor Robert Peston says.

There was no reason for people with Northern Rock savings accounts to panic, he added.

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

The decision for the Bank of England to become the “lender of last resort” comes after consultation with the Treasury and the Financial Services Authority.

However the disclosure is expected to rock financial markets, Mr Peston said.

“Although the firm remains profitable, the fact that it has had to go cap in hand to the Bank is the most tangible sign that the crisis in financial markets is spilling over into businesses that touch most of our lives,” he said.

The Governor of the Bank of England, Mervyn King, said in a letter to the Treasury Select Committee on Wednesday that the Bank would be prepared to provide emergency loans to a bank that ran into difficulties, so long as those difficulties were the result of temporary market conditions.

“The fact that the Bank of England has been prepared to act as the lender of last resort is an indication that it thinks the problems at Northern Rock are temporary ones,” Mr Peston added.

The loan would be provided at a penal interest rate, he said.

Following the widespread losses made by investors in loans to US homebuyers with poor credit history, the so-called sub-prime loans, investors have become wary of buying all mortgage debt, including Northern Rock¿s.

“All banks are having greater difficulties than normal getting funding from the market,” Mr Peston said.

“But as a specialist mortgage lender, Northern Rock, no-one really wants to lend to them.”

**In the first six months of the year, Northern Rock made pre-tax profits of just under £300m, barely changed from the previous year.

However it massively increased its share of the mortgage market, taking 18.9% of all net mortgage lending in the UK against its previous peak of 14.5%, seen in the second half of 2006.

The firm’s shares have almost halved in value this year and talk that it may be in further trouble left it as the biggest loser on the FTSE 100 on Thursday, closing down 4.9%.

Northern Rock has loans and other assets on its balance sheet of £113bn. The value of deposits placed with it by retail customers is £24bn.**

They were down close to 5% today.

My guess is someone will step in and buy them.

This should be a temporary liquidity event (a la Barclays recently) but headlines like this do no good for any bank, particularly one as exposed as NR.

If I was thinking of putting money into a NR account, I would personally limit it to the UK deposit protection scheme limit (about 30k I think??)

If they are setup in Ireland would you not be protected by the Irish limit

It depends on where they are regulated as far as I know e.g. Rabo deposits are protected by the Dutch Government.

It should say on the Ts&Cs

It’s the first item on the BBC 10 O’Clock news. We could see a mini run tomorrow if people aren’t careful.

I’m guessing >20% down tomorrow, remember when it comes to bank stock logic is irrelevant; emotion is what drives the stock price.

Doesnt anyone watch “It’s a Wonderful Life” anymore ?

I’m missing the story here obviously, because NR going to the emergency facility should not be lead story news. Either the BBC have overblown this, or there is something more serious being asked for.

No, your just reacting based on a careful rational evaluation of the health of the company.

Instead of what the vast majority of people will do tomorrow.

you mean a run on the post office counter :slight_smile:

You may chuckle (virtually at least), :slight_smile:

But I think tomorrow we can rely upon alot of people with savings accounts in NR & Rabo looking very carefully at their T&Cs.

Anyone who believes, 'Bricks & Mortar always goes up…", probably also also believes that “money in the Bank is safe” !

Neither is necessarily true.

Its events like this that change perceptions. The flow of bubble deflating news seems to be snowballing.

Bingo, plus as a lot of folks have already noticed the media sentiment has altered radicaly.

The media has now ‘flipped’ & instead of working for the VIs is now moving at the head of the herd.

Northern Rock is apparently about 510p in pre-open trading. Down about 20% on last night’s close.

I hear the northern Rock web site is unusable as so many people are trying to log in, I don’t think they are logging in to put money into their accounts. Could this be the worlds first digital bank run?

The site has this message running;