Rocky run

14 September 2007 By Mike Verdin

The Bank’s agreement to act as a lender of last resort hasn’t stopped queues at bank branches and depositors rushing to take out their cash. The Bank has failed to communicate adequately. These extraordinary scenes may only stop if somebody puts Northern Rock out of its misery.

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The Bank of England has agreed to provide standby liquidity to Northern Rock after the UK mortgage bank said the credit market squeeze might leave it unable to refinance maturing liabilities.

Northern Rock needs to refinance about £34bn in securitised mortgage loans within the next month or so, according to some analysts.

The terms of the Bank support were not revealed.

Northern Rock said the need to slow loan growth to preserve liquidity would cut second half preprofits to £500m540m, excluding potential provisions from exposure US subprime mortgages and structured investment vehicles. Analysts had forecast second half pretax profits of £650m.

The immediate market reaction was to send Northern Rock shares down 31% at 443p.

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