Rock rush to drop customers to stop
Jan 19 2009 By nebusiness
NORTHERN Rock will today unveil a new strategy that will see the bank slow the rate at which it shrinks its mortgage book. Sources last night told
The move was originally part of the business plan agreed with the Government to meet European state aid rules.
But those leaving the Rock were putting massive pressure on the credit available at other banks.
Today’s announcement comes just a week after
The new strategy is part of a wider rescue package to save failing banks with a second bail-out in three months.
Chancellor Alistair Darling said: “The credit crunch means there is less money around to lend, we need to deal with that.”
Meanwhile, the Government will today set out plans to pour billions of pounds more of taxpayers’ money into Britain’s struggling banks in a bid to restore confidence and get credit flowing again.
Officials worked throughout the weekend to finalise the second bail-out in three months which is expected to see the Government increase its stake in the banks while underwriting up to £200bn of so-called “toxic assets”.
The Treasury had been looking at the proposals for some weeks after it became clear that the initial £37bn bail-out in October had failed to provide a sufficient platform for normal lending to resume.
However they were given added urgency by Friday’s dramatic stock market falls amid fears that the banks were set to reveal further massive write-downs in the forthcoming results season.
Prime Minister Gordon Brown said that the measures were intended restore lending to businesses and households amid fears that the shortage of credit is driving Britain deeper into recession.
“We know that the essential problem, that has been held back by what has been happening internationally over the last few months, is the resumption of lending and the expansion of lending,” he said. “What we want to do is see businesses get the money that they need to be able to create jobs and secure investment for the future. What I want to see is people who are mortgage holders having access to mortgages at prices they can afford. That’s what tomorrow’s programme is all about.”
It appears that the plan has two main elements. One involves an insurance scheme for the “toxic assets” which the banks were left with after the collapse of the sub-prime mortgage market in the United States.
Under such a scheme, the banks would pay a fee to have their bad loans underwritten by the taxpayer up to a certain level.
This would help “ring fence” the bad assets – estimated at around £200bn – and limit their losses, freeing up capital which could then be used to lend to individuals and businesses.
The second element could see the Government ease the terms of its original bail-out in which it took preference shares in some of the banks. These carried an onerous 12% rate of interest, encouraging the banks to pay them back as quickly as possible at the expense of lending. Some of them could now be exchanged for ordinary shares, which in the case of Royal Bank of Scotland could see the Government increase its stake from 58% to 70%, moving it towards full nationalisation.
Another possibility is for the Government to guarantee inter-bank loans and new consumer lending, as recommended by former HBOS chief Sir James Crosby in a Treasury report last year.
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