Northern Rock awaits further withdrawals

by Gill Montia

Story link: Northern Rock awaits further withdrawals

Northern Rock has paid out almost £2 billion to its savers since the end of last week and is expecting withdrawals to continue in the coming days.

The UK’s fifth largest mortgage lender was forced to approach the Bank of England, as a “lender of last resort” on Friday, because of the current difficulties on the money markets.

Northern Rock has reported that the amount so far withdrawn was actually less that expected, but its postal accounts hold deposits of around £10 billion and it is not yet clear how these savers will react.

Both the Financial Services Authority and the Treasury have stated that Northern Rock is solvent but this has done little to restore confidence in the company, which unlike other UK mortgage lenders, funds its activities mainly by borrowing on the wholesale money markets, rather than relying on its deposits.

Northern Rock’s difficulties come at a time when the company was close to being sold to one of two UK banks, and given that its shares fell by 32% last Friday, it could now become a takeover target.

However, bidders will have to take into account the damage caused to Northern Rock’s reputation by scenes of savers queuing to withdraw their cash.

Neither does the lender have a large network of branches, which might be attractive to a potential purchaser.

An initial analysis shows that the money so far withdrawn by Northern Rock’s savers is being deposited with mortgage banks, building societies and High Street banks, suggesting that consumer confidence remains in the other financial institutions.