TonyM
09-17-2007, 10:20 AM
Sept. 17 (Bloomberg) -- Northern Rock Plc, the U.K. mortgage lender bailed out by the Bank of England last week, tumbled to a seven-year low in London trading after customers lined up at branches across the country to withdraw their savings.
Shares of Newcastle-based Northern Rock fell 32 percent to 299.75 pence as of 10:45 a.m. in London, leaving the fourth- largest U.K. mortgage company with a market value of 1.26 billion pounds ($2.5 billion). Merrill Lynch & Co. halved its earnings estimate for 2007 and said future profit is ``little more than guesswork.'' Analysts said the bank may be split up or acquired.
Hundreds of clients ignored assurances from Chief Executive Officer Adam Applegarth and U.K. Chancellor of the Exchequer Alistair Darling that their deposits are secure after the biggest rescue by the central bank in 30 years. Savers removed at least 2 billion pounds ($4 billion), or about 8 percent of Northern Rock's total, since Sept. 14, the British Broadcasting Corp. reported without saying where it got the information.
``Until Northern Rock has either been broken up, in the form of its mortgage debt being taken on by another bank, or the company taken over as a whole, the negative effect will continue,'' said Howard Wheeldon, an analyst at BGC Partners, an inter-dealer brokerage in London.
Northern Rock required emergency financing because it relies on the capital markets rather than deposits for 73 percent of its funds. The collapse of subprime mortgages in the U.S. drove borrowing costs higher and traditional lenders curtailed loans to all but the safest borrowers.
Assurances Ignored
The stock, which fell 31 percent on Sept. 14, has slumped to one quarter of the record reached in February. The company had 24.4 billion pounds in retail deposits at the end of June, according to its Web site.
Bradford & Bingley Plc and Alliance & Leicester Plc, which also rely more on financial markets than customer deposits to fund mortgages, also extended losses in London trading. Bradford & Bingley dropped 11 percent, the most since 2000, to 329.75 pence and Alliance & Leicester sank 14 percent, the most in a decade, to 750.5 pence.
Northern Rock's demise and the increase in mortgage costs may bring an end to the decade-long property boom in the U.K. House prices have more than tripled over the past 10 years as consumers took on a record 1.3 trillion pounds of debt, helping the economy expand for 60 consecutive quarters.
`Sincere Apologies'
Shares of homebuilders fell for a second day today. Barratt Developments Plc dropped as much as 6.5 percent, Persimmon Plc lost 5.7 percent and Taylor Wimpey Plc fell 5.8 percent. House prices in London dropped the most in three years in September, a report from property Web site Rightmove Plc showed Sept. 14.
Northern Rock CEO Applegarth offered visitors to the bank's Web site yesterday his ``sincere apologies for any inconvenience,'' and said ``savings are secure and there is no need for you to withdraw your money.''
U.K. finance minister Darling held a series of broadcast interviews, telling listeners of BBC Radio 4's Today program this morning that their accounts are protected. ``There are difficulties with queues but they can get their money out,'' he said.
U.K. banking rules only safeguard 31,700 pounds for individual depositors, so allowing the company to go bankrupt risks destroying the savings of some of its customers.
The lender's 100 billion pounds of mortgages may be broken up between U.K. banks, the Sunday Telegraph said yesterday, citing unidentified people close to the company. New York-based Merrill is advising Northern Rock, and possible buyers include London-based HSBC Holdings Plc, Lloyds TSB Group Plc and Barclays Plc, as well as Edinburgh-based Royal Bank of Scotland Group Plc and HBOS Plc, the paper said.
`Long Slog'
The decline in the shares prompted analysts at Credit Suisse Group and Merrill to say the bank may be bought. ``We think the game is over for Northern Rock in its present form,'' Merrill analyst John-Paul Crutchley wrote in a note to investors.
It would be a ``long slog'' for Northern Rock to remain independent, Applegarth said in the Sunday Telegraph. The bank's business isn't viable any longer because of its dependence on financial markets for funding, he said.
``If customers want money, they can have it,'' Applegarth told Sky News today. ``Getting it to them is the issue. It is a logistical exercise.''
Northern Rock credit-default swaps increased 15 basis points to 170 basis points, according to JPMorgan Chase & Co. The cost of the credit-default swaps, which traded as high as 210 basis points on Friday, rises as creditworthiness deteriorates.
`Insolvency Crisis'
Bingley, England-based Bradford & Bingley, which makes one in five loans to U.K. landlords, gets 53 percent of its funding from the markets, a similar proportion to Alliance & Leicester, which is based in Leicester, England.
The companies said they have sufficient cash and haven't asked the Bank of England for emergency funds. ``It's business as usual,'' said Alliance & Leicester spokesman Stuart Dawkins.
Banks are paying more to borrow as the difference between the three-month U.K. London interbank offered rate and the Bank of England's benchmark rate has climbed to 1.13 percentage points, compared with 0.34 percentage points in the first half of the year, said Sandy Chen, a London-based analyst at Panmure Gordon & Co.
``The high costs of wholesale funding will continue,'' Chen said. ``We also assume that the liquidity crisis will deepen into an insolvency crisis.''
British mortgage lenders have fallen more than commercial lenders this year on the London Stock Exchange. Northern Rock dropped 63 percent, Bradford & Bingley fell 30 percent, and Alliance & Leicester declined 23 percent. The FTSE All-Share Bank Index is down 14 percent.
``This is a global squeeze, it is not Northern Rock specific,'' Applegarth told reporters last week. ``It must be difficult for other banks as well. I wouldn't be surprised if this happens to others.''
Shares of Newcastle-based Northern Rock fell 32 percent to 299.75 pence as of 10:45 a.m. in London, leaving the fourth- largest U.K. mortgage company with a market value of 1.26 billion pounds ($2.5 billion). Merrill Lynch & Co. halved its earnings estimate for 2007 and said future profit is ``little more than guesswork.'' Analysts said the bank may be split up or acquired.
Hundreds of clients ignored assurances from Chief Executive Officer Adam Applegarth and U.K. Chancellor of the Exchequer Alistair Darling that their deposits are secure after the biggest rescue by the central bank in 30 years. Savers removed at least 2 billion pounds ($4 billion), or about 8 percent of Northern Rock's total, since Sept. 14, the British Broadcasting Corp. reported without saying where it got the information.
``Until Northern Rock has either been broken up, in the form of its mortgage debt being taken on by another bank, or the company taken over as a whole, the negative effect will continue,'' said Howard Wheeldon, an analyst at BGC Partners, an inter-dealer brokerage in London.
Northern Rock required emergency financing because it relies on the capital markets rather than deposits for 73 percent of its funds. The collapse of subprime mortgages in the U.S. drove borrowing costs higher and traditional lenders curtailed loans to all but the safest borrowers.
Assurances Ignored
The stock, which fell 31 percent on Sept. 14, has slumped to one quarter of the record reached in February. The company had 24.4 billion pounds in retail deposits at the end of June, according to its Web site.
Bradford & Bingley Plc and Alliance & Leicester Plc, which also rely more on financial markets than customer deposits to fund mortgages, also extended losses in London trading. Bradford & Bingley dropped 11 percent, the most since 2000, to 329.75 pence and Alliance & Leicester sank 14 percent, the most in a decade, to 750.5 pence.
Northern Rock's demise and the increase in mortgage costs may bring an end to the decade-long property boom in the U.K. House prices have more than tripled over the past 10 years as consumers took on a record 1.3 trillion pounds of debt, helping the economy expand for 60 consecutive quarters.
`Sincere Apologies'
Shares of homebuilders fell for a second day today. Barratt Developments Plc dropped as much as 6.5 percent, Persimmon Plc lost 5.7 percent and Taylor Wimpey Plc fell 5.8 percent. House prices in London dropped the most in three years in September, a report from property Web site Rightmove Plc showed Sept. 14.
Northern Rock CEO Applegarth offered visitors to the bank's Web site yesterday his ``sincere apologies for any inconvenience,'' and said ``savings are secure and there is no need for you to withdraw your money.''
U.K. finance minister Darling held a series of broadcast interviews, telling listeners of BBC Radio 4's Today program this morning that their accounts are protected. ``There are difficulties with queues but they can get their money out,'' he said.
U.K. banking rules only safeguard 31,700 pounds for individual depositors, so allowing the company to go bankrupt risks destroying the savings of some of its customers.
The lender's 100 billion pounds of mortgages may be broken up between U.K. banks, the Sunday Telegraph said yesterday, citing unidentified people close to the company. New York-based Merrill is advising Northern Rock, and possible buyers include London-based HSBC Holdings Plc, Lloyds TSB Group Plc and Barclays Plc, as well as Edinburgh-based Royal Bank of Scotland Group Plc and HBOS Plc, the paper said.
`Long Slog'
The decline in the shares prompted analysts at Credit Suisse Group and Merrill to say the bank may be bought. ``We think the game is over for Northern Rock in its present form,'' Merrill analyst John-Paul Crutchley wrote in a note to investors.
It would be a ``long slog'' for Northern Rock to remain independent, Applegarth said in the Sunday Telegraph. The bank's business isn't viable any longer because of its dependence on financial markets for funding, he said.
``If customers want money, they can have it,'' Applegarth told Sky News today. ``Getting it to them is the issue. It is a logistical exercise.''
Northern Rock credit-default swaps increased 15 basis points to 170 basis points, according to JPMorgan Chase & Co. The cost of the credit-default swaps, which traded as high as 210 basis points on Friday, rises as creditworthiness deteriorates.
`Insolvency Crisis'
Bingley, England-based Bradford & Bingley, which makes one in five loans to U.K. landlords, gets 53 percent of its funding from the markets, a similar proportion to Alliance & Leicester, which is based in Leicester, England.
The companies said they have sufficient cash and haven't asked the Bank of England for emergency funds. ``It's business as usual,'' said Alliance & Leicester spokesman Stuart Dawkins.
Banks are paying more to borrow as the difference between the three-month U.K. London interbank offered rate and the Bank of England's benchmark rate has climbed to 1.13 percentage points, compared with 0.34 percentage points in the first half of the year, said Sandy Chen, a London-based analyst at Panmure Gordon & Co.
``The high costs of wholesale funding will continue,'' Chen said. ``We also assume that the liquidity crisis will deepen into an insolvency crisis.''
British mortgage lenders have fallen more than commercial lenders this year on the London Stock Exchange. Northern Rock dropped 63 percent, Bradford & Bingley fell 30 percent, and Alliance & Leicester declined 23 percent. The FTSE All-Share Bank Index is down 14 percent.
``This is a global squeeze, it is not Northern Rock specific,'' Applegarth told reporters last week. ``It must be difficult for other banks as well. I wouldn't be surprised if this happens to others.''