Queues still form despite guarantee
BANKING shares in Northern Rock and Alliance and Leicester rose today after the Government moved to tackle the sector’s crisis of confidence.
But queues of people still formed again today outside branches of Northern Rock despite yesterday’s Government guarantee for savers.
Ministers were hoping for an end to the panic among savers who have queued in their hundreds to empty their accounts, and for a rallying of bank stock prices, after Chancellor Alistair Darling’s announced last night that all the banking group’s deposits would be covered.
Northern Rock, which has seen its market value cut in half since Friday, posted a 9.6% share gain, in early trading, up to 310p after Mr Darling stepped in to guarantee all of the ailing banking group’s deposits.
And Alliance and Leicester was caught in a major sell-off at the close of trading yesterday, but saw its shares open 18% higher today.
Mr Darling sought to reassure investors that Northern Rock would remain solvent.
But he added: “Should it be necessary, we, with the Bank of England, would put in place arrangements that would guarantee all the existing deposits in Northern Rock during the current instability in the financial markets.”
Northern Rock said it will refund withdrawal charges to customers who have emptied their accounts if they wish to return.
Under normal banking rules 100% of the first £2,000 in any bank account is protected and 90% of the next £33,000 - giving a maximum payout of £31,700 if a bank did go bust.
This limited security offered by the Financial Services Compensation Scheme had led customers to withdrawn more than £2bn from Northern Rock since Friday.
But Mr Darling has now pledged the Government would step into protect customers’ accounts if the bank collapsed.
Northern Rock said the Chancellor’s statement made it “clear beyond any doubt that all savings in Northern Rock are safe and secure”.
In a full-page advertisement published in various newspapers - including the Evening Gazette - Northern Rock chief executive Adam Applegarth said the company was “open for business as usual” today.
Northern Rock added that the group - while not currently in takeover talks with any other banks - was considering its options.
A host of rivals have been linked with the Newcastle-based group in recent days.
Northern Rock also said: “Any customer who paid a penalty to withdraw their funds from Northern Rock, due to concern over the current situation, will have the penalty refunded if they reinvest those funds in the same type of account with Northern Rock by 5 October 2007.”
Panic selling of Northern Rock shares has spread to other banks. The Alliance and Leicester saw its value fall by 30% and shares in Bradford and Bingley fell 15%.
Worries over the economy also spread to the housing sector, with big falls in many construction company stocks.
Unlike most banks, which get their money from customers making deposits into savings accounts, Northern Rock is heavily reliant on wholesale money markets to raise cash for lending.
But banks have stopped lending to each other due to market fears over exposure to potential losses on high-risk US mortgages.
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