Customers besiege stricken UK lender

Thousands of customers queued to withdraw savings from embattled UK bank Northern Rock yesterday and its shares plunged again, heightening pressure for a sale of the business or its assets.

Britain's fifth-biggest mortgage lender, which on Friday was rescued by emergency Bank of England funding, said there was no need for investors or customers to panic and it remained solvent.

Nevertheless, customers appeared set to continue pulling out savings and by early yesterday its shares had more than halved in value since Thursday's close.

"I didn't initially panic but the more you watch the news and read you think maybe we ought to do it as well," said Barbara Williams, retired, as she stood in line with hundreds of others at the Oxford Circus branch in central London.

"We thought we would do what everyone else is doing. Rightly or wrongly it's a chance you can't take."

Fears have mounted that a run of withdrawals will exacerbate the lender's funding problems and force a fire sale of the business.

The problems were triggered by the global credit crunch as banks, worried about exposure to dodgy US mortgage debt, jacked up the price of lending to each other.

By 1000 GMT shares in the bank were down 32 percent at 296 pence, following a 31 percent tumble on Friday to cut the bank's market value to under 1.3 billion pounds. The shares fell as low as 290 pence and have lost 70 percent this year.

'Franchise broken'

"The franchise is broken - the deposit franchise at least - the run on the bank is happening as we speak and could see as much as 12 billion (pounds) of deposits withdrawn," said Mamoun Tazi, analyst at MF Global.

"One way for this to stop is for the bank to be taken over," he said.

The Newcastle-based bank provides one in 13 British home loans. The BoE, as lender of last resort, stepped in on Friday to offer emergency funding to ease its funding problems after it struggled to borrow in money markets.

The bank said yesterday it had not drawn on the emergency facility.

News of the emergency funding line sent thousands of Northern Rock's 1.4 million savings customers rushing to branches and to the Internet for their money.

Customers were estimated to have withdrawn about 1.5 billion pounds on Friday and Saturday.

Some reports said as much as 2 billion pounds has been withdrawn, which would represent about 8 percent of its deposits.

Government, banking and regulatory officials are monitoring the situation closely, trying to halt the run on withdrawals.

But there was an element of panic and frustration across the bank's 76 branches.

"I didn't sleep at all on Friday night. It's a lot of money and I was very distressed and my husband was as well," said Karen Dawson, 53, a lawyer who was among hundreds in line at the Oxford Circus branch after failing to access her account via the Web site and by telephone since the crisis broke.

More significant could be the reaction of postal account holders, however, who account for 10 billion pounds of the bank's 24 billion pounds of retail deposits.

Northern Rock Chief Executive Adam Applegarth sought to reassure customers that their savings were secure via a message posted on the company's website, www.northernrock.co.uk.

"Your money is safe with us and if you want some, or all of it back, then you are perfectly entitled to it.

Whilst you may have to wait a little longer than usual to receive it, you will get it," Applegarth said in the message posted on the website on Sunday.

'For sale'

Northern Rock has hoisted a "for sale" sign up and banks including Lloyds TSB have considered deals, according to industry sources, but suitors have been put off by difficult credit markets and uncertainty about the true valuation.

Analysts said the bank, approaching its 10th anniversary as a listed company, is unlikely to survive in its present form.

Options include an outright sale or the slicing up of its 100 billion pound mortgage portfolio among the country's other major banks, which industry sources said could happen but was not imminent.

Agencies

(China Daily 09/18/2007 page16)