Continued problems for Northern Rock
June 6, 2008
Following reports last week about a sharp drop in Northern Rock share values, further reports confirm that the bank is facing further turmoil as customers are now flocking to the bank’s branches in order to take out their savings amidst fears that the bank may go under. Bank and government officials have offered assurances that the bank is still solvent and remains a ’sound financial institution’. However, this has not stopped a stampede of Northern Rock customers from withdrawing £1.5 billion from the bank so far since stories about its ‘bail out’ loan from the Bank of England broke out.
There are reportedly 1.5 million savers with Northern Rock, which also enjoys a reputation as the fifth largest mortgage lender in the UK. However, savers have become so worried after learning that the bank took a £30 billion loan from the Bank of England that many – some long term customers of the bank – have decided to take their savings elsewhere rather than risk losing it. One customer who has £180,000 in savings said that he was withdrawing his savings despite assurances from the government because consumers could simply not trust these sorts of assurances from officials any longer.
The bank had to approach the Bank of England for the loan following the recent turmoil that was sparked in the sub-prime sector of the United States and seems to have had severe global repercussions. Northern Rock officials have issued apologies to customers for the delays in service, as staff have been inundated due to the number of customers flocking to the branches in order to take out their savings. One executive from Northern Rock stated that some branches would be staying open into the late evening in order to enable customers to take out their cash if they wish, although he reiterated that the bank was still solvent and that customers had nothing to worry about.
However, some industry experts fear that the bank’s outlook is too optimistic. Some are saying that even though the bank may be solvent now the damage that this episode may have on its reputation, and the level of withdrawals that have been made, could mean that the bank disappears from the high street within a year.
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