-Caveat Lector-
Begin forwarded message:
From: [EMAIL PROTECTED]
Date: September 14, 2007 7:43:41 PM PDT
To: [EMAIL PROTECTED]
Cc: [EMAIL PROTECTED], [EMAIL PROTECTED], [EMAIL PROTECTED],
[EMAIL PROTECTED]
Subject: Thousands in Bank Run on British Banks
Northern Rock panic as
customers queue on the streets
to withdraw their cash
"This problem has been caused by the economic reality of what is
happening in America."
The bank's 1.5 million customers have £24 billion in savings
accounts, but its mortgage borrowers have outstanding debts of
£100 billion."
By SEAN POULTER and PAUL SIMS
15th September 2007
http://www.dailymail.co.uk/pages/live/articles/news/news.html?
in_article_id=481778&in_page_id=1770
A shudder ran through the economy yesterday in the wake of the Bank
of England's emergency loan to keep Northern Rock afloat.
Panicking customers queued in their thousands to empty savings
accounts.
And the worry among City analysts was that other banks might be
forced to resort to similar measures in the light of the global
'credit crunch'.
The dramatic scenes followed the admission by Northern Rock,
Britain's fifthbiggest mortgage lender, that it was running out of
ready money.
This morning: Customers outside the Northern Rock branch in Leeds
Its share price plunged by one third -- amid falls across the FTSE
100 index -- as the market digested the implications of the Bank of
England ["bailing out" a bank] for the first time in more than 30
years.
After the news broke, lengthy queues spilled on to the streets as
Northern Rock's staff attempted to reassure worried customers they
would not lose their life savings.
The bank also had to close down its website, which could not cope
with the flood of savers trying to transfer their money.
Customers queue outside the branch
The mortgage bank is the first major British victim of the 'crunch'
triggered by the failure of thousands of risky mortgages in the
U.S. It has found it impossible to borrow money from international
banks, which are wary after losing billions as a result of the 'sub-
prime' fiasco.
Chief executive Adam Applegarth said the crisis was the worst he
had seen in 25 years. However, he added: "My advice to customers
is, with the Bank of England providing this liquidity, they should
be greatly reassured.
"If I was a depositor - and I am - I would be reassured if the Bank
of England was behind me."
Some customers were concerned about the financial future of
Northern Rock but others were just seeking reassurance in Croydon,
Surrey
Although Northern Rock has assets of £115 billion, it does not have
the ready money needed to pay off some of its existing debts and to
give out new mortgages.
As a result, it has been forced to ask the Bank of England for a
financial lifeline to allow it to continue trading.
Bosses at the bank have predicted that mortgage rates will have to
RISE for millions of Britons.
This is a knock-on effect of the shortage of ready money - or
liquidity - in the system.
Shares in Northern Rock slumped 31 per cent after City analysts
shared their fears that its profits will be severely dented.
The company was forced to issue a profit warning, suggesting the
bank will this year make around £150 million less than previously
expected.
Customers outside the Northern Rock branch in Kingston Upon Thames,
south-west London
Panic took hold among customers despite reassurances from Gordon
Brown, Alistair Darling, City watchdogs and the finance industry
that Northern Rock remains solvent.
However, the company's future looks distinctly rocky and there is
every chance it will now be taken over by a bigger rival.
It has instituted a series of cost-cutting measures and a
recruitment freeze, putting a question mark against the future of
its 6,000 staff.
One leading economist has condemned the decision to bail out
Northern Rock.
Professor Willem Buiter of the London School of Economics said the
move gave lenders the green light to borrow and lend aggressively
in the knowledge the Bank of England would always come to the rescue.
Concerned customers in Bromley, Kent
He added: "The problem has been caused by a combination of Northern
Rock's flawed business strategy and economic reality with what has
happened in America.
"And I do not see why the Bank of England should have come to their
aid because Northern Rock is a fairly small fish anyway.
"It would have been better to leave it to the private sector to
sort out. The bank is not too large to fail."
Northern Rock has some 1.5million customers with £24 billion
invested in savings accounts. However, its 800,000 mortgage
borrowers have outstanding debts of £100 billion.
The Chancellor stressed that the Bank of England's support system
was put in place in 1997 to cover exactly the sort of problems
being experienced by Northern Rock.
He said: "The key thing is to make sure that, on top of a very
strong and stable economy here and throughout the world, banks do
have money.
Alistair Darling: 'It is in everybody's interest that we have a
very stable banking system'
"There is not a shortage of money in the system but while banks
sort out the consequences of the collapse in the U.S. they are
reluctant to lend to each other."
The Prime Minister's spokesman added: "We have a very well-
established system for dealing with financial stability and issues
of that kind.
"This is not an issue about the solvency of Northern Rock."
There are fears that other major banks will also need to ask the
Bank of England for help in the near future.
But Angela Knight, the chief executive of the British Bankers'
Association, said the public can be "absolutely confident" that
Northern Rock is a "very sound financial institution".
Her calming words failed to reflect the scenes around the country
as customers clamoured to take out their savings from local branches.
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