Northern Rock bailed out by Bank of England

Sim Two · #1 13-09-2007, 07:54 PM

Just seen on the BBC website (20:45) that "Northern Rock have applied to the Bank of England for emergency support"

What does this mean - should we be worried about our deposits?

Sim

Sim Two · #2 13-09-2007, 08:15 PM

It's now the main item on the website - see below

Northern Rock asks for Bank help

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."

sadie · #3 13-09-2007, 08:46 PM

Just found this on Reuters. So I won't panic just yet then...
LONDON, Sept 13 (Reuters) - British mortgage lender Northern Rock (NRK.L: Quote, Profile , Research) is applying to the Bank of England for emergency financial support, the BBC reported on Thursday.
The BBC said Northern Rock, which was Britain's biggest mortgage lender in the first half of this year, was not in danger of going bust. But its reported request for help would show the scale of funding problems in the face of a credit market crunch.
The Bank of England declined to comment on the report.

Havealaugh · #4 13-09-2007, 09:06 PM

I've just been on it - I'm sure demand to check to see if there is a statement on there is huge.

There isn't a statement on there anyway.

Calico · #5 13-09-2007, 09:08 PM

What happens if everyone logs on tonight and withdraws all their cash??

GeneralZod · #6 13-09-2007, 09:22 PM

Quote:

Originally Posted by Calico

What happens if everyone logs on tonight and withdraws all their cash??

I'm getting timeouts trying to log in to clear out my accounts

yoganmahew · #7 13-09-2007, 09:36 PM

Could the possibility of a run on NR (based on this being splashed all over the papers) be why the BoE has lowered the amount banks need to deposit with it? (i.e. to provide liquidity to NR?).

Jethro Tull · #8 13-09-2007, 09:41 PM

is there a run of people trying to withdraw money?

yoganmahew · #9 13-09-2007, 09:43 PM

Sorry, I was referring to the what if above; presumably bankers have to do the "what if" thinking aswell. Having said that, I can't get into my account at the moment (timeout), but presumably every other coward who has money there is trying to get in, just to make sure they can!

Jethro Tull · #10 13-09-2007, 09:43 PM

page doesn't seem to want to load when I try log on

BTW you're right, we all are!!!

sadie · #11 13-09-2007, 09:59 PM

Report on BBC news says Bank of England only lends money to those companies they reckon are financially sound, and that investors should be reassured by this move. Put it this way, the Bank of England wouldn't be lending money to anyone unless they were pretty certain it was a safe bet.

Jethro Tull · #12 13-09-2007, 10:06 PM

'We regret that this service is currently unavailable. Please try again later, or telephone our administration office on (01) 480 6050 for further assistance. Opening hours 09.00am - 17.00pm (GMT) Mon - Fri'

paddyb · #13 13-09-2007, 10:09 PM

The worse case scenario here is that Northern Rock (NR) gets taking over and the new owner does not offer such attrative deposit rates to Irish customers. There is no evidence to suggest that NR is insolvent. In fact its problem is a liquidty one - that's the problem in the wider banking markets at present. As regards NR's subprime exposure or exposure to 100% mortgages remember that for NR to have a problem (i) the mortgage holder must defualt and (ii) the value of the property (collateral to the mortgage) must fall below the value of the loan outstanding. Assuming that NR's applies the same type of underwriting controls as other bank in taking on new business then you would need a recession (to trigger (i)) and a property crash (to trigger (ii)) to cause a systemaic problem accross NR's mortgage book leading to possible insolvency.

ClubMan · #14 13-09-2007, 10:19 PM

Quote:

Originally Posted by askew70

For info, from the IFSRA website, re compensation limits within Ireland

As far a I know NR Ireland is covered by the UK FSA and not the IFSRA deposit protection scheme. The following is from the NR Ireland terms of business:

Quote:

Deposit Protection Scheme

Northern Rock is a member of the UK Financial Services Compensation Scheme (the ‘Scheme’) established under the
UK Financial Services and Markets Act 2000. Payments under the Scheme are limited to 100% of the first £2,000 (at the
prevailing Euro equivalent) of a depositor’s total deposits with the bank and 90% of the next £33,000 (at the prevailing
Euro equivalent) resulting in a maximum payment of £31,700 (at the prevailing Euro equivalent). The Scheme limit
relates to each depositor for their combined deposits held with Northern Rock and not for each account. Further details of
the Scheme are available on request.

Ron_H · #15 13-09-2007, 10:27 PM

There is also http://www.fscs.org.uk/. If you look through the consumer FAQs you will see that Irish deposit holders are covered.
Limits are Deposits: £31,700 per person
100% of the first £2,000 and 90% of the next £33,000.

carpedeum · #16 13-09-2007, 10:59 PM

Northern Rock seeks emergency funding

Telegraph.co.uk 11:21 BST 13/09/2007

http://www.telegraph.co.uk:80/money/.../cnrock114.xml

Commentary included on above link...

"Northern Rock customers should not panic about its current problems for two reasons. First, part of the Bank of England charter is to protect customer accounts and, second, the bank is not about to collapse...."

To quote Sir Alex Ferguson... "squeaky-bum time!"

Brendan Burgess · #17 14-09-2007, 06:15 AM

This is a very worrying development for depositors.

Please avoid posting anything off topic on this thread.

Brendan

Kendr · #18 14-09-2007, 06:57 AM

RTE Morning Ireland just mentioned this discussion. So I guess people should be careful about what they say.

Worrying times for savers with NR though.

Dinarius · #19 14-09-2007, 06:58 AM

A tripartite statement was issued by BofE, FSA and NR earlier. Both the BofE and FSA are satisfied with the state of NR.

To say this is very worrying for depositors is, with respect, scaremongering and a bit irresponsible.

They are solid and solvent. But, they will post much lower profits this year.

They have NO connection with the US sub-prime market.

Chances are, they will get taken over and we may not get the % rate we're getting now.

Sit back and await developments.

I have all my SSIA money with NR, by the way.

D.

#20 14-09-2007, 07:07 AM

Still the same today. Looks like they're preventing people taking out their money...The risk of internet banking finally rears up its ugly head...

Quote:

'We regret that this service is currently unavailable. Please try again later, or telephone our administration office on (01) 480 6050 for further assistance. Opening hours 09.00am - 17.00pm (GMT) Mon - Fri'