Panic in England

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Panicking customers take £1.5bn from Northern Rock
Savers ignore call for calm and queue for hours to get their money out of crisis bank
By Brian Brady, Whitehall Editor
Published: 16 September 2007
Northern Rock faced being wiped off the high street within weeks last night, after customers rushed to pull their money out of the stricken mortgage bank.

Major bankers were believed to have hatched plans to sell the bank, dividing its £100bn mortgage portfolio between their institutions, in what would amount to a private-sector rescue mission. The remarkable plan came as City experts voiced fears that the bank could see as much as £12bn – more than half of its deposits – withdrawn this week.

Police were called in to help handle the rush of customers taking money out yesterday, as savers ignored pleas for calm and clamoured for a second day outside branches across the UK. From Glasgow to London, long lines formed even before counters opened, amid concerns over Northern Rock's stability after its emergency loan from the Bank of England.

The UK's fifth-largest lender was forced to go to the Bank for help with cashflow problems last week. But the rescue package provoked panic among some of its 1.5 million savers. The exodus of savings, after clients pulled out £1bn – or 4 to 5 per cent of retail deposits – on Friday, came in despite reassurance that customers' money was safe. No official figure was available yesterday but speculation suggested that as much as another £500m may have been withdrawn. The bank has also yet to learn about withdrawals from the £9.9bn held in postal accounts.

Many financial experts are suggesting that the Northern Rock brand name is doomed, predicting that it will disappear from the high street within a year.

David Cameron, the Tory leader, waded into the crisis last night, claiming the "huge expansion of public and private debt" overseen by Gordon Brown as Chancellor had paved the way for Northern Rock's plight.

In an attempt to maintain confidence in his company, Adam Applegarth, the chief executive, insisted the bank had yet to draw on the emergency cash, which he called "a backdrop in case we need to use it".

A spokesman said that branches had opened early and remained open late in order to deal with any queues. Staff were working hard to answer calls and keep the website responding, he said. "We are determined to help everyone as best we can," the spokesman added. "We continue to reiterate that their money is safe."

The British Bankers' Association urged customers to "calm down". "Northern Rock is a sound, safe bank and there is absolutely no reason for mortgage customers or savers to worry."

But the evidence across the country yesterday suggested the pleas for calm had failed to convince many savers.

Northern Rock has struggled since money markets seized up over the summer. The bank is not short of assets, but they are tied up in loans to home owners. The bank has found it difficult to borrow the cash to run its day-to-day operations because of the global credit squeeze.

Its shares fell by 32 per cent on Friday after it emerged it had approached the Bank for help. And it warned it could have £150m shaved off its profits due to the money-market turmoil.




http://news.independent.co.uk/business/news/article2966986.ece

 

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Bankers fear £12bn run on RockDavid Smith, Grant Ringshaw and Holly Watt
NORTHERN ROCK, the mortgage bank rescued by the Bank of England last week, could see as much as £12 billion - nearly half of its deposits - withdrawn by worried savers, experts say.

The run on the bank continued yesterday as police were called in to keep the peace when angry and desperate customers besieged branches across the country despite assurances from the Treasury and Bank of England that their savings were secure.

Branches due to close at midday opened until 2pm, but many hundreds of people were still trying to get their money when the branches closed and minor scuffles and arguments broke out.

Senior executives at Northern Rock spent yesterday at its New-castle head office monitoring events, but the lender is seen to have little future as an independent entity. It held talks about a possible takeover by Lloyds TSB before the crisis and is expected to be sold off cheaply to a rival.

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The bank, which saw £1 billion taken out by worried savers on Friday and at least £500m removed yesterday, is prepared for a further flood of withdrawals when branches open tomorrow. Many will be by customers with nearly £10 billion in postal accounts, who can only make withdrawals by writing to the bank.

“The question is why wouldn’t you take your money out and put it somewhere else,” said one senior banker, who predicted £12 billion worth of withdrawals from the bank, which has £24 billion in deposits from savers. “Though Northern Rock is solvent, a lot of people have been gripped by the fear that they might lose some of their savings. It is a huge problem.”

One banking analyst warned: “It is not beyond the realms of possibility that they could lose half of their deposit base, if not more.”

“We have not had a decent run on a bank for many, many years. The difference now is the internet and that means you can get your money out very quickly. Banking is about confidence and that has gone from Northern Rock in a spectacular way.”

This weekend there was criticism from backbench MPs and economics experts over the authorities’ failure to avert the crisis. Mervyn King, the governor of the Bank of England, faces a grilling from a parliamentary committee on Thursday.

Gavyn Davies, the former BBC chairman and Goldman Sachs economist, questioned whether the authorities had been tough enough in monitoring financial institutions. “Once we get into this sort of problem some sort of rescue becomes inevitable,” he said. “Authorities need to impose tougher risk controls when times are good. They have few palatable choices during the meltdown.”

Critics believe that regulators should have curtailed Northern Rock’s activities earlier. The former building society used to account for 2% of the total mortgage market a decade ago, but its share now stands at about 9%.

In the first six months of this year, it was responsible for one in five new mortgages and offered generous loans - up to 125% of the value of the property - to first-time buyers.

David Cameron, the Conservative leader, accused Gordon Brown of having “presided over a huge expansion of public and private debt without showing awareness of the risks involved”.

Writing in a newspaper today, he says: “Though the current crisis may have had its trigger in the United States, over the past decade the gun has been loaded at home.”

Whitehall officials said the decision to prop up Northern Rock was agreed by the Treasury, the Bank and the Financial Services Authority, the regulator. “We expected this, but there is no need to panic,” said a Treasury official. “It is a solvent institution.”

But George Mudie, a Labour MP on the committee that will question the Bank of England governor, said: “I’m wondering where it leaves Mervyn King in terms of credibility. Northern Rock’s business model is similar to the private equity industry, which we have been looking at, and there are now a lot of very worried people.”

Michael Fallon, a Tory member of the committee, said: “It seems very odd that Mervyn King was saying there would be no bail-out, then he sets out how to do a bail-out and then he does the bail-out. We need to understand much more clearly how the decision was taken.

Yesterday, Professor Willem Buiter, a former member of the Bank of England’s monetary policy committee, became the first insider to criticise the Bank’s intervention. “A bail-out has occurred that should not have occurred and moral hazard has been injected into the financial markets — into the financial system — that wasn’t necessary,” he said.

However, other senior former Bank insiders rallied to King’s defence. Sir Alan Budd, who was chief economic adviser to the Treasury during the last Tory administration, said: “My general thoughts are that it is always easy to be wise after the event. I think Mervyn King and his colleagues will have been reluctant to offer assistance until they judged it was absolutely necessary.”

Budd also predicted a cut in interest rates to help calm nerves.

Police were called to help bank staff deal with ‘boisterous customers’ at branches in Glasgow and Sheffield yesterday, advising at least one store to close its doors. In Manchester staff handed queueing customers chocolates to placate them.

Ernest Floate, a retired civil engineer whose pension was hit when Equitable Life almost collapsed four years ago, was one of hundreds of people at a branch in Kingston, southwest London, from 6am yesterday. “When I heard the news I just thought, ‘Oh no, not again’,” he said.

One couple from Islington, north London, tried to withdraw £250,000 in savings from the Golders Green branch. The wife, a retired nurse, said: “I don’t trust the bank. I feel I need to close the bank account and take my money elsewhere.”

Outside the Bolton branch, Janet Walker, from Atherton, said: “I’ve completely lost confidence in Northern Rock and just want to get my money out.”



http://business.timesonline.co.uk/t...ectors/banking_and_finance/article2461206.ece