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Northern Rock shares plunge 24% Northern Rock shares plunge 24%
(10 minutes later)
Shares in one of the UK's largest mortgage lenders, Northern Rock, have fallen by 24% after the Bank of England decided to offer it emergency funding.Shares in one of the UK's largest mortgage lenders, Northern Rock, have fallen by 24% after the Bank of England decided to offer it emergency funding.
But experts say it does not mean Northern Rock, which has £113bn in assets, 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.
Other bank shares fell, with those in Alliance & Leicester and Bradford & Bingley down by between 5% and 6%.Other bank shares fell, with those in Alliance & Leicester and Bradford & Bingley down by between 5% and 6%.
Meanwhile those in HBOS and Barclays fell by roughly 2.5%.Meanwhile those in HBOS and Barclays fell by roughly 2.5%.
Northern Rock has also said that its profits for 2007 will be hit, but that it remains solvent.Northern Rock 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
Unlike most banks, which get their money from customers making deposits into savings accounts, Northern Rock is built around its mortgage business.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 via the wholesale credit market - primarily by selling the debt on in the form of bonds.It raises most of the money which it provides for mortgages via the wholesale credit market - primarily by selling the debt on in the form of bonds.
Speaking on the BBC Radio 4 Today programme, Chancellor Alistair Darling, said: "The problem here is there is a lot of money in the system but they are reluctant to lend it to each other at the moment. Speaking on BBC Radio 4's Today programme, Chancellor Alistair Darling said: "The problem here is there is a lot of money in the system but they are reluctant to lend it to each other at the moment.
"In order to create a stable banking system, the Bank steps in and it makes facilities available to the Northern Rock."In order to create a stable banking system, the Bank steps in and it makes facilities available to the Northern Rock.
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 news 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 href="/1/hi/business/6994434.stm">Treasury statement on loan class="" href="/1/hi/business/6994230.stm">Reaction to the news
"Northern Rock can draw on them when it requires, but it means it can carry on trading, people can use their accounts in the normal way, they carry on making their mortgage payments in the usual way, Northern Rock will be able to carry on its business.""Northern Rock can draw on them when it requires, but it means it can carry on trading, people can use their accounts in the normal way, they carry on making their mortgage payments in the usual way, Northern Rock will be able to carry on its business."
And Angela Knight, chief executive of the British Bankers' Association, also told the 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, also told the 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."
The emergency lending facility to Northern Rock was agreed by Mr Darling, on advice from Mervyn King, governor of the Bank of England.The emergency lending facility to Northern Rock was agreed by Mr Darling, on advice from Mervyn King, governor of the Bank of England.
Northern Rock chief executive Adam Applegarth said that they had not yet borrowed any of the "unlimited" funds available.Northern Rock chief executive Adam Applegarth said that they had not yet borrowed any of the "unlimited" funds available.
He also indicated that it may in future be more expensive worldwide for institutions to borrow money, and that in turn could mean that mortgages generally become more expensive.He also indicated that it may in future be more expensive worldwide for institutions to borrow money, and that in turn could mean that mortgages generally become more expensive.
Meanwhile, BBC correspondent Declan Curry says that with Northern Rock' share price falling it could make it vulnerable to a takeover bid from one of its rivals.Meanwhile, BBC correspondent Declan Curry says that with Northern Rock' share price falling it could make it vulnerable to a takeover bid from one of its rivals.
'Lender of last resort''Lender of last resort'
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.
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.
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
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".
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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