Newcastle in race to qualify for crunch aid

Sep 12 2008 by Graeme King, The Journal

THE boss of Newcastle Building Society has revealed it is racing to qualify for Bank of England help to ease it through the credit crunch, as the days to the deadline tick by.

Colin Seccombe, chief executive of the Newcastle, says his organisation is working hard on structures to let it benefit from the Special Liquidity Scheme set up in the wake of last summer’s seizure of the financial markets.

On the first anniversary of the Northern Rock crisis beginning, Mr Seccombe said he believed the Bank ought to have relaxed the SLS October 20 deadline.

Yesterday Bank of England governor Mervyn King said there would be replacement facilities once the SLS deadline is reached, but he has strongly hinted the terms will not be so favourable and any lending will be on a shorter term basis than with the SLS.

The Newcastle chief executive says he does not need the SLS to operate its business, but the access it provides to reasonably priced, medium term finance could be very beneficial to the society. Mr Seccombe said: “The special liquidity scheme was launched by the Bank of England to provide liquidity.

“As a building society of our size, it’s proved quite difficult to take advantage of it – due to the technical constraints put on it. There is a huge amount involved in getting yourself in a position to take advantage. We are currently working on that, but it’s a race to get there.”

He added: “Our expectation is we will make the deadline, but there are so many parties involved there is always a danger that a last minute difficulty could crop up.

“The SLS will provide funding on a three year basis, where the replacement – and it’s good there will be one – is likely to be a much shorter term scheme designed to deal with short term peaks and troughs.”

The chief executive stressed that a desire to access the SLS was not a sign of the Newcastle being in any difficulty – the scheme would simply give the society more capacity at a time when the credit market is tight.

He said: “This is not a panic measure, not something we have to do, because funding is not coming through from elsewhere, it’s a means of increasing funding over and above the levels we have at the moment.”

Mr Seccombe described how the Newcastle society had to get involved with investment banks, ratings agencies, lawyers and regulator the Financial Services Authority, to come up with a “covered bond programme” to allow the society to use the SLS – a process that would take up to 12 months in normal circumstances, but which was being fast tracked into six.