UK bank rises on govt pledge

Northern Rock Plc, the UK mortgage lender that sought an emergency bailout last week, rose in London trading after the government stepped in to stop a run on the bank.

Shares of Newcastle, England-based Northern Rock rose 9.6 percent to 309.75 pence as of 9:10 am after falling 56 percent in the past two days. Rival Alliance & Leicester Plc, which fell the most in a decade on Monday, gained 26 percent to 753.5 pence and Bradford & Bingley Plc was up 5.8 percent to 295.25 pence.

Hundreds of savers lined up outside Northern Rock branches for three days after the Bank of England provided emergency funding, drawing about 3 billion pounds of deposits, according to the Daily Telegraph. Chancellor of the Exchequer Alistair Darling said late yesterday the government will guarantee all accounts. The pledge will be extended to any solvent bank in similar circumstances, a Treasury spokesman said.

"The decision of the government together with the Bank of England late yesterday to guarantee the deposits of Northern Rock customers should, in our view, moderate the run on Northern Rock's deposit base and bolster confidence in the system," Bear Stearns Cos analysts wrote in a note to investors yesterday.

Northern Rock, whose roots date back to 1850, is the most vulnerable UK bank to the higher rates of the past two months because capital markets account for 73 percent of its funding. The last time the central bank rescued a UK lender was after the 1973 collapse of Cedar Holdings, a pioneer of second mortgages.

'Earnings guesswork'

The bank's credit-default swaps fell 70 basis points to 150 basis points, according to JPMorgan Chase & Co. The cost of the contracts decreases as creditworthiness improves.

Northern Rock's 1.4 million retail customers had about 24.4 billion pounds in deposits at the end of June, according to its website. The stock, which fell 31 percent on September 14, slumped 77 percent from the all-time high in February through Monday.

Chief Executive Officer Adam Applegarth offered visitors to the company's website "my sincere apologies for the anxiety and inconvenience that we have caused you". The company promised to refund penalty fees to customers who withdrew investments if they reinvest the same amount in the same type of account by October 5.

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

"I do recognize that people are concerned," Darling told reporters. "I've made it clear that we will take the necessary action to ensure that people's deposits within Northern Rock bank are safe and guaranteed. That's unequivocal."

Leicester-based Alliance & Leicester sank 31 percent yesterday and Bingley, England-based Bradford & Bingley, which makes one in five loans to UK landlords, dropped 15 percent.

Bloomberg News

(China Daily 09/19/2007 page15)