[NYTr] Angry UK savers forcing sale of Northern Rock

[All the News That Doesn't Fit]

The Telegraph - Sep 16, 2007
http://www.telegraph.co.uk/money/main.jhtml;jsessionid=WRKLTFU5KMZUFQFIQMGCFFOAVCBQUIV0?xml=/money/2007/09/16/cnrock116.xml


Angry savers forcing sale of Northern Rock

By Iain Dey and Patrick Hennessy

Northern Rock, the crisis-hit bank under siege from thousands of
its customers, was preparing itself last night for a selloff, The
Sunday Telegraph can reveal.

One plan being worked on by City bankers was to divide the company's
L100 billion mortgage portfolio between the other major banks in
what would amount to a private-sector rescue of the lender.

In scenes not experienced for decades, police were needed to keep
the peace at branches across the country as increasingly angry and
desperate investors rushed to withdraw their funds.

However, despite many queuing from before dawn, scores were sent
away empty-handed when cashiers ran out of time to serve them.

The Northern Rock crisis sparked a wider political row as David
Cameron, the Conservative Party leader, pinned the blame on Prime
Minister Gordon Brown. Mr Cameron accused the prime minister of
presiding over a "huge expansion of public and private debt" during
his decade as chancellor.

Writing for The Sunday Telegraph, the Conservative leader declared:
"Though the current crisis may have had its trigger in the United
States, over the past decade the gun has been loaded at home."

Personal debt had trebled under Labour to L1.3 billion, Mr Cameron
added, as he called on ministers to explain the "chain of events"
that led up to the Bank of England's decision last week to prop up
Northern Rock.

The bank siege became a virtual stampede, despite repeated assurances
by Alistair Darling, the chancellor, that the lender remained
solvent.

However, sources close to the company said that if customers continued
to draw their deposits at the same alarming rate, Northern Rock
would be forced to break up.

Government and Bank of England officials are understood to be
preparing a public statement designed to reassure millions of
customers across the banking sector that their savings were safe.
Both are anxious to secure a "quick fix" of Northern Rock's woes
before the crisis spreads.

One plan under discussion in Whitehall is a co-ordinated rescue of
Northern Rock involving other banks and the Bank of England.

"If the run on deposits looks out of control, Northern Rock would
effectively be nationalised and put into administration so it could
be wound down," said an official.

A source close to Northern Rock said: "Things look really ugly. If
the share price falls heavily on Monday, then a fast break-up and
sale of the assets looks inevitable."

On Friday, following 10 days of discussions involving the chancellor,
Mervyn King, the governor of the Bank of England, and Sir Callum
McCarthy, the chairman of the Financial Services Authority, the
Bank of England offered Northern Rock an emergency credit line.

The reputation of Mr King, the Bank of England's highly respected
governor, has taken a battering over his handling of the crisis
involving the country's fifth-largest mortgage lender.

"Mervyn was being too clever," said one of his officials. "If he
had sounded a little less tough, banks might still be lending to
each other."

A Whitehall source said: "The governor has handled this badly. He
urgently needs to reassure savers."

Northern Rock's near collapse is the latest symptom of the squeeze
in world financial markets, which began in the United States late
last year when overstretched homeowners began to default on their
mortgage payments.

The credit squeeze has made it difficult for Northern Rock to raise
money to fund its business.

Although the Bank of England's deal ensures that Northern Rock has
more than enough money to honour all of its commitments to savers
and mortgage customers, its longer-term future remains in doubt.

"Queues outside our branches are not pretty viewing on TV," admitted
Adam Applegarth, Northern Rock's chief executive. "Has our brand
been damaged today? Well, of course it has."

He added: "It will be a long slog as an independent company to
rebuild that. Our share price has come off 30 per cent. You have
got to be more vulnerable [to a sale] if your share price has come
down. It's up to the bidders to make a bid."

With frantic manoeuvring continuing in Whitehall and the City,
police were called on to calm "boisterous" customers in numerous
branches, including Sheffield, Manchester, Glasgow, and London.

At least L1 billion was withdrawn from the bank by worried savers
on Friday -- 4 per cent of the bank's deposits. Branch staff said
they were even busier yesterday.

It is understood that attempts by the Bank of England to find a
single buyer for Northern Rock have failed. Instead, it is more
likely to be sold off piece by piece with possible buyers including
HSBC, Lloyds TSB, Barclays, Royal Bank of Scotland, and Halifax
Bank of Scotland.

Merrill Lynch, the investment bank, is expected to oversee the
auction, which could begin as early as next week.

                       ***

The Times of London - Sep 15, 2007
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article2461206.ece


Bankers fear #12 billion run on Northern Rock

by David 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 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 2 pm, 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 Newcastle
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.

The bank, which saw #1 billion taken out by worried savers on
Friday and at least #500 million removed yesterday, is prepared for
a further flood of withdrawals when branches open tomorrow. Many
will be by customers with nearly L10 billion in postal accounts,
who can make withdrawals only 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 percent of the total mortgage market a decade ago,
but its share now stands at about 9 percent.

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

David Cameron, the Conservative leader, accused Prime Minister
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, Cameron 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 of England, 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 bailout.
Then he sets out how to do a bailout. And then he does the bailout.
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 of England's intervention. "A bailout 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 of England 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 6 am
yesterday. "When I heard the news I just thought, 'Oh no, not
again,'" he said.

One couple from Islington, north London, tried to withdraw L250,000
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."