subprime woes continue--bank of england bails out troubled northern rock bank--depositors line up to draw out funds

Customers queue to enter a Northern Rock branch

Panic grips Northern Rock customers for second day
15/09/2007 11h27



LONDON (AFP) - Hundreds of worried customers of embattled British bank Northern Rock began queuing outside their local branches at dawn Saturday as they scrambled to withdraw savings.

Long queues began forming as people gathered outside branches as early as 6:00 am (0500 GMT), according to Sky News television.

Panicking customers of Britain's fifth-biggest mortgage lender had begun to withdraw savings en masse Friday after the Bank of England bailed out the bank, taking out a reported billion pounds (two billion dollars, 1.45 billion euros).

Northern Rock said Friday it was facing severe difficulties raising cash to cover its liabilities amid the ongoing global credit squeeze.

The bank is the first major British financial institution to be hit severely by the global credit crunch sparked last month by a crisis in the US subprime, or high-risk, mortgage sector.

One couple had Friday mounted a sit-in protest at their Northern Rock branch in Cheltenham, central-western England, after being told they could not withdraw over the counter savings worth 1.0 million pounds as it was in an online account. Police had to be called in to remove them.


British newspapers Saturday pinned the blame on Northern Rock and even Prime Minister Gordon Brown, but welcomed the action taken by the Bank of England.

"A crisis requires fine judgements and the Bank's decision to act -- assuming it did not respond to political pressure -- looks reasonable," the Financial Times said in an editorial.

The business daily said the Bank should charge Northern Rock a sizeable penalty rate and tide it over until it could be sold.

The Daily Telegraph fingered the prime minister in its editorial.

"Gordon Brown must accept responsibility for this credit bubble: in his 10 years at the Treasury, he was happy to benefit from a sense of faux-prosperity based, not on rising productivity, but on house prices, loans and, to a degree, immigration," the broadsheet argued.

"A snap election, before people realise the full consequences of what he has done, is suddenly looking attractive again."

Brown has so far refused to rule out holding a general election in the coming months amid speculation he may gamble and seek an early mandate for his new government.



Under his predecessor Tony Blair, Brown's governing Labour Party won the May 2005 general election with a comfortable majority.

The Sun, Britain's biggest-selling daily, said Saturday that Northern Rock was not an innocent party.

"The bank has continued to lend customers five times their salary and 125 percent of their home's value despite all warnings of economic instability and an impending fall in house prices," read the tabloid's editorial.

"These crazy deals have kept the property bubble inflated for too long. They are almost certain to end now and house prices are sure to fall."

Shares in Northern Rock, which issued a profits warning on Friday, plunged 31.46 percent to 438 pence at the close, dragging the European banking sector lower as investors fretted over potential difficulties elsewhere.

Northern Rock, based in Newcastle, north-east England, warned its 2007 profits could be 147 million pounds lower than expected.

Analysts forecast that the troubled bank was very unlikely to go bust despite the spectre of a "bank run."

A bank run is when customers withdraw savings en masse due to fear that a lender will become insolvent, which can force the bank into bankruptcy.



Britain's finance minister, Alistair Darling, who authorised the Bank of England to help Northern Rock, called Friday for international action to help reduce the risk of this kind of financial turbulence reoccurring.

The Bank of England has made available an unspecified amount of cash to Northern Rock in the form of a liquidity facility.

Meanwhile Britain's financial regulator, the Financial Services Authority (FSA), Friday appealed for calm.