Bank of England funds Northern Rock By TARIQ PANJA, Associated Press Writer

Bank of England funds Northern Rock By TARIQ PANJA, Associated Press Writer
47 minutes ago



LONDON - Britain's fifth largest mortgage lender recieved emergency funding from the Bank of England in an attempt to head of a liquidity crisis.

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Northern Rock PLC warned Friday that market turmoil sparked by a mortgage crisis in the U.S. would cut profits to between 500 and 540 million pounds ($1 billion and $1.1 billion) — which is as much as 147 million pounds ($298 million) lower than expected.

Northern Rock shares plunged 25 percent to 476.75 pence ($9.60) on the London Stock Exchange.

Chief executive Adam Applegarth said Northern Rock expected to borrow substantial amounts of money from the Bank of England at a penalty rate, but did not specify how much. The bank said it was having trouble borrowing from other banks, and that the liquidity problem was likely to continue for the rest of the year.

Applegarth said the bank had billions of pounds in cash, but that it had approached the Bank of England early to head off a possible liquidity crisis.

"We can't tell when the global (credit) freeze is going to unwind. On that basis it made sense to get this facility now," Applegarth told Sky News.

He said the banks' customers would be unaffected, and that business at the bank's branches was going on as usual.

"All this stems from the problems in the American housing market," British Treasury Secretary Alastair Darling told Sky News. "There's plenty of money in the system; all the banks have money, but at the moment they're not lending to each other in the way they usually do."

Darling said the Bank of England had approved the funds in the interest of keeping the British banking system stable and told customers there was no reason to panic.

The chief executive of the British Bankers' Association, Angela Knight attempted to sturdy the nerves of Northern Rock customers.

"I think that anybody who is waking up this morning who is either a saver with Northern Rock or has got a mortgage ... can be absolutely confident that they have got their money with or they have borrowed from a very sound financial institution," she told British Broadcasting Corp. radio.

"This isn't about solvency, this is about a short-term problem that the Northern Rock has in getting liquidity — that is, getting some cash from the normal interbank lending market."

Bankers warned against making parallels between Northern Rock and troubled Countrywide Financial Corp. in the United States_ which is releasing 13,000 employees and has been forced to borrow billions of dollars as it struggles to weather a wicked downturn in the U.S. housing market.

The British bank is more diligent in its lending policy, no longer has a subprime book, and has a repossession rate of less than one percent, said Eric Leenders an executive director of the British Bankers Association.

"It's a very healthy business which has run into a simple liquidity issue owing to the market jitters around the U.S. subprime mortgage market," Leenders said.

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On the Net:

Northern Rock PLC: http://www.northernrock.co.uk