This article is from the source 'bbc' and was first published or seen on . It will not be checked again for changes.
You can find the current article at its original source at http://news.bbc.co.uk/go/rss/-/1/hi/business/6994099.stm
The article has changed 9 times. There is an RSS feed of changes available.
Version 0 | Version 1 |
---|---|
Northern Rock asks for Bank help | Northern Rock asks for Bank help |
(30 minutes later) | |
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. | 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. | 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. | 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 bank has struggled to raise money to finance its lending ever since money markets seized up over the summer. |
'Temporary problem' | |
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. | 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. | 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 added. | |
It is much more exposed than its rivals to this distaste for mortgage debt Robert PestonBBC Business Editor Northern Rock's share price | |
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 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 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. | The loan would be provided at a penal interest rate, he said. |
'Question of confidence' | |
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 but as a specialist mortgage lender, no-one really wants to lend to Northern Rock. " Mr Peston said. | |
"It is much more exposed than its rivals to this distaste for mortgage debt, because its business is overwhelmingly focused on providing mortgages, rather than other kinds of banking business." | |
Analyst Justin Urquhart-Stewart of Seven Investment Management said the problem was essentially about confidence in the markets. | |
"We don't know where the poison went from all these bad loans and you have to look at all these bad loans as a bit like a blancmange that's been hit very heavily by a spade and it's gone everywhere. | |
"They turn up in all sorts of strange funds and therefore we don't know who's got the losses." |