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New saver queues at Northern Rock

BBC | September 17, 2007

Worried savers have continued to flock to Northern Rock bank branches to withdraw their savings, following similar scenes over the weekend.

Bank boss Adam Applegarth said people could withdraw money and that it was "business as usual", while Chancellor Alistair Darling appealed for calm.

About £2bn has been withdrawn since Thursday, when the bank applied to the Bank of England for emergency funds.

In Monday morning trading, shares in Northern Rock were down by 33%.

Shares in fellow mortgage banks also suffered.

In morning trade in London Northern Rock's shares, which had lost 32% on Friday, fell from 438 pence to 293 pence. Shares in mortgage lenders Alliance & Leicester and Bradford & Bingley were also down, by 14% and 11%.

'Bank of England backing'

Mr Darling had told the BBC's Radio 4 Today programme that the money of Northern Rock depositors was safe.

"If people want to get their money out of Northern Rock bank, they can do it. The money is there and it is backed by the Bank of England so they can get it," he said.

The chancellor and Prime Minister Gordon Brown will meet US Treasury Secretary Hank Paulson to discuss the growing turmoil in world financial markets later on Monday.

Northern Rock branches had opened at 0800 BST on Monday - an hour earlier than usual.

Mr Applegarth apologised to customers who had had to wait in queues to be dealt with by staff, but said that bank branches had been "extremely busy".

Lindsay Topping, 59, from Cliftonwood in Bristol, who has tens of thousands of pounds in her Northern Rock account, said: "I've got quite a lot of money in there.

"I'm not sure what I'm going to do with it. I'll wait and see what I'm told. It's impossible not to feel a bit panicked after the coverage we've seen over the last few days."

See what went wrong at Northern Rock
It is understood Northern Rock was almost sold to rival bank Lloyds TSB.

However, the deal fell through because of the difficulty of borrowing money in the current financial climate.

The lower the Northern Rock share falls the easier it would be for a rival to take it over.

Experts at Lehman Brothers said in a statement: "The company appears to face a choice between running down its business, or a sale.

"Any interested buyer appears to be in a strong position over price."

Mr Applegarth told the BBC he could not discuss possible takeovers, nor would he confirm the exact amount of cash withdrawn from bank branches since Friday.

"Customers are entitled to get their money - it is a logistics exercise for us, making sure we can look after our customers," he said.

'Hard slog'

On Friday, Northern Rock shares fell 32% and will be closely watched this week.

As well as extending its opening hours, Northern Rock has also increased bandwidth on its online banking, which has struggled under the volume of people trying to access the website.

The BBC's business editor Robert Peston said the £2bn withdrawn - which represents about 8% of the £24bn deposits it held on Thursday - was actually less than the mortgage lender and officials at the Bank of England and Financial Services Authority had feared.

However it cannot be certain whether much more will be withdrawn in the coming days, especially from holders of Northern Rock's postal accounts - which contain about £10bn.

The City watchdog, the Financial Services Authority (FSA), has backed comments from the Treasury, saying it is confident Northern Rock is solvent and savers could continue to deposit and withdraw funds.

The BBC has learned that two banks were very interested in acquiring the beleaguered firm. However, they were concerned about doing such a big deal amid turmoil in money markets and when it was difficult and expensive to raise money from other banks and financial institutions.

Mr Darling said the emergency lending facility offered to Northern Rock would be transferred to any new owner.

However once the facility expires - and the Bank will not make the expiry date public - there is no guarantee it would be extended for the new owner.

"Most bidding banks will remain nervous about taking on a balance sheet of Northern Rock's size with the risk hanging over it of needing to refinance a large chunk of loans from the Bank of England at short notice in markets which may remain frozen," Robert Peston said.

Summer markets

Northern Rock's realisation that selling the bank had become impossible in current market conditions, persuaded the board to approach the Bank of England and ask for access to emergency loans, he added.

"Plainly, a takeover would have been a less humiliating option. But it just couldn't be done."

Northern Rock has struggled to raise money to finance its lending ever since money markets seized up over the summer.

Unlike most banks, which get their money from customers making deposits into savings accounts, Northern Rock is built around its mortgage business.

It raises most of the money which it provides for mortgages by borrowing from banks and other financial institutions.

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