From The Sunday Times
September 16, 2007
Bankers fear £12bn run on Rock
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could see as much as £12 billion - nearly half of its deposits - withdrawn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 2pm, 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 New-castle 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 £500m removed yesterday, is prepared for a further flood of
withdrawals when branches open tomorrow. Many will be by customers with
nearly £10 billion in postal accounts, who can only make withdrawals 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% of
the total mortgage market a decade ago, but its share now stands at about
9%.
In the first six months of this year, it was responsible for one in five
new mortgages and offered generous loans - up to 125% of the value of the
property - to first-time buyers.
David Cameron, the Conservative leader, accused 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, he 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 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 bail-out, then he sets out
how to do a bail-out and then he does the bail-out. 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's
intervention. "A bail-out 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 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 6am yesterday.
"When I heard the news I just thought, 'Oh no, not again'," he said.
One couple from Islington, north London, tried to withdraw £250,000 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."
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article2461206.ece
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| User: "Woodswun" |
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| Title: Re: International Banking System Jitters Continue... |
16 Sep 2007 06:49:15 AM |
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On Sat, 15 Sep 2007 20:39:54 -0700, Docrodile wrote:
From The Sunday Times
September 16, 2007
Bankers fear £12bn run on Rock
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 of its deposits - withdrawn
by worried savers, experts say.
<snip>
Well, that's not a very good sign, is it? 0-o
Woods
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| User: "" |
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| Title: Re: International Banking System Jitters Continue... |
16 Sep 2007 04:32:40 PM |
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On Sep 16, 9:49 pm, Woodswun <woods...@tepidmail.com> wrote:
On Sat, 15 Sep2007 20:39:54 -0700, Docrodile wrote:
From The Sunday Times
September 16, 2007
Bankers fear =A312bn run on Rock
David Smith, Grant Ringshaw and Holly Watt
NORTHERN ROCK, the mortgage bank rescued by the Bank of England last we=
ek,
could see as much as =A312 billion - nearly half of its deposits - with=
drawn
by worried savers, experts say.
<snip>
Well, that's not a very good sign, is it? 0-o
Woods
Well one cannot leave a stake in the hands of the Inept can one?
LB
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