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Northern Rock shares fall by 20% Northern Rock shares fall by 20%
(10 minutes later)
UK markets have been hit by fallout after the decision by the Bank of England to give emergency financial support to the Northern Rock. Shares in one of the UK's largest mortgage lenders, Northern Rock, have fallen by 20% after the Bank of England decided to give it emergency funding.
But experts say it does not mean one of the UK's largest mortgage lenders is in danger of going bust. But experts say it does not mean Northern Rock, which has £113bn in assets, is in danger of going bust.
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.
In early trade in London, shares in Northern Rock fell by 20% to 512.50 pence, while other bank shares fell. Other bank shares fell, with those in Alliance & Leicester and Bradford & Bingley down by between 5% and 6%.
Shares in Alliance & Leicester and Bradford & Bingley fell by between 5% and 6%, while those in HBOS and Barclays fell by roughly 2.5%. Meanwhile those in HBOS and Barclays fell by roughly 2.5%.
The bank has also said that its profits for 2007 will be hit, but that it remains solvent.The bank has also said that its profits for 2007 will be hit, but that it remains solvent.
On the assumption that the current conditions remain until the end of 2007, there will clearly be an impact on Northern Rock's 2007 asset growth and, therefore, on profits Northern Rock statementOn the assumption that the current conditions remain until the end of 2007, there will clearly be an impact on Northern Rock's 2007 asset growth and, therefore, on profits Northern Rock statement
And Angela Knight, chief executive of the British Bankers' Association, told the BBC Radio 4 Today programme: "I think that anybody who is waking up this morning who is either a saver with Northern Rock or has got a mortgage... can be absolutely confident that they have got their money with or they have borrowed from a very sound financial institution."And Angela Knight, chief executive of the British Bankers' Association, told the BBC Radio 4 Today programme: "I think that anybody who is waking up this morning who is either a saver with Northern Rock or has got a mortgage... can be absolutely confident that they have got their money with or they have borrowed from a very sound financial institution."
She added: "Northern Rock is not a reckless lender... it primarily advances mortgages against good solid houses and the proper regulatory and careful procedures that we have in the UK."She added: "Northern Rock is not a reckless lender... it primarily advances mortgages against good solid houses and the proper regulatory and careful procedures that we have in the UK."
The emergency lending facility to Northern was agreed by the Chancellor, Alistair Darling, on advice from Mervyn King, governor of the Bank of England.The emergency lending facility to Northern was agreed by the Chancellor, Alistair Darling, on advice from Mervyn King, governor of the Bank of England.
Northern Rock, one of the UK's largest mortgage lenders, has also issued a warning on profits.
It is much more exposed than its rivals to this distaste for mortgage debt Robert PestonBBC Business Editor Robert Peston's blog Q&A: Northern Rock Reaction to the newsIt is much more exposed than its rivals to this distaste for mortgage debt Robert PestonBBC Business Editor Robert Peston's blog Q&A: Northern Rock Reaction to the news
Further soothing noises have been made by experts to say that the move does not mean Northern Rock's business is in trouble.Further soothing noises have been made by experts to say that the move does not mean Northern Rock's business is in trouble.
Even if its shares fall, customers' mortgages and savings with the firm should not be affected.Even if its shares fall, customers' mortgages and savings with the firm should not be affected.
But the disclosure is expected to rock financial markets, Mr Peston said.But the disclosure is expected to rock financial markets, Mr Peston said.
The market will be closely watching to see how its shares perform on Friday, as well as those of peers such as Bradford & Bingley and Royal Bank of Scotland.The market will be closely watching to see how its shares perform on Friday, as well as those of peers such as Bradford & Bingley and Royal Bank of Scotland.
'Lender of last resort''Lender of last resort'
Northern has struggled to raise money to finance its lending ever since money markets seized up over the summer, in the wake of the US sub-prime loans crisis.Northern has struggled to raise money to finance its lending ever since money markets seized up over the summer, in the wake of the US sub-prime loans crisis.
The decision for the Bank of England to become the "lender of last resort" is extremely rare - and also comes after consultation with the Financial Services Authority.The decision for the Bank of England to become the "lender of last resort" is extremely rare - and also comes after consultation with the Financial Services Authority.
NORTHERN ROCK FACTS Founded in 1965 after merger of Northern Counties Permanent Building Society and Rock Building SocietyBecame a public company in 1997Has 18.9% of UK lendingLoans and assets of £113bnDeposits from customers of £24bn Northern Rock's share priceNORTHERN ROCK FACTS Founded in 1965 after merger of Northern Counties Permanent Building Society and Rock Building SocietyBecame a public company in 1997Has 18.9% of UK lendingLoans and assets of £113bnDeposits from customers of £24bn Northern Rock's share price
It is an unlimited facility, with interest rated at a "penal rate" of more than 1% above Bank base rate.It is an unlimited facility, with interest rated at a "penal rate" of more than 1% above Bank base rate.
The collateral against the loan will be mortgages made by Northern Rock, which are regarded by the Bank of England as sound.The collateral against the loan will be mortgages made by Northern Rock, which are regarded by the Bank of England as sound.
In a statement, Northern Rock said it had "agreed with the Bank of England that it can raise such amounts of liquidity as may be necessary by either borrowing on a secured basis from the Bank of England or entering into repurchase facilities with the Bank of England".In a statement, Northern Rock said it had "agreed with the Bank of England that it can raise such amounts of liquidity as may be necessary by either borrowing on a secured basis from the Bank of England or entering into repurchase facilities with the Bank of England".
It added: "Such repurchase facilities would include securities that have prime residential mortgage assets as underlying collateral.It added: "Such repurchase facilities would include securities that have prime residential mortgage assets as underlying collateral.
"On the assumption that the current conditions remain until the end of 2007, there will clearly be an impact on Northern Rock's 2007 asset growth and, therefore, on profits.""On the assumption that the current conditions remain until the end of 2007, there will clearly be an impact on Northern Rock's 2007 asset growth and, therefore, on profits."
The bank also said that it was considered by the FSA to be "solvent".The bank also said that it was considered by the FSA to be "solvent".
An FSA statement said Northern Rock "exceeds its regulatory capital requirement and has a good quality loan book".An FSA statement said Northern Rock "exceeds its regulatory capital requirement and has a good quality loan book".
"The decision to provide a liquidity support facility to Northern Rock reflects the difficulties that it has had in accessing longer-term funding and the mortgage securitisation market, on which Northern Rock is particularly reliant.""The decision to provide a liquidity support facility to Northern Rock reflects the difficulties that it has had in accessing longer-term funding and the mortgage securitisation market, on which Northern Rock is particularly reliant."
Are you affected by the issues covered in this story? Do you work for Northern Rock? Are you a customer? Is this a wake up call for other banks? Send us your comments and experiences using the form below.Are you affected by the issues covered in this story? Do you work for Northern Rock? Are you a customer? Is this a wake up call for other banks? Send us your comments and experiences using the form below.
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