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More banks may need bailouts as fear grows in Britain

Via NY Transfer News Collective  *  All the News that Doesn't Fit
 
The Telegraph - Sep 18, 2007
http://www.telegraph.co.uk/money/main.jhtml;jsessionid=NLRSMJNVCXQELQFIQMFCFGGAVCBQYIV0?xml=/money/2007/09/18/cnal118.xml


More banks may need bailouts as fear grows in Britain

By Katherine Griffiths 

Shareholders in Britain's biggest banks lost L8 billion yesterday
as rumours swept the stock market that other high-street lenders
could be forced to follow Northern Rock's call for a Bank of England
bailout.

Alliance & Leicester slumped 31 percent, down 273p to L6, with its
shares losing L600 million of value in the last hour of trading
alone on speculation it would appeal for help. A&L said it was well
capitalised and did not need aid.

The sea of red in banking shares saw Bradford & Bingley fall 50.75
to 279p, while ongoing fears about Northern Rock forced its shares
down 155.25 to 282.75p, with yesterday's 35 percent fall coming on
top of a 31 percent drop on Friday.

After the market closed the government attempted to calm the turmoil,
announcing it would guarantee all Northern Rock deposits. Chancellor
Alistair Darling said: "Should it be necessary, we and the Bank of
England will put in place arrangements to guarantee all the deposits
in Northern Rock."

Market sources said the move showed the government and the BoE are
desperate to see Northern Rock sold, and the unusual move should
make it easier for a bidder to value the lender.

However, a buyer would probably want additional commitments. The
bank is understood to be looking at whether it can fund Northern
Rock's mortgage book for about a year to cushion any further worsening
in the debt markets and more withdrawals of deposits by customers.

The bank said on Sunday its emergency funding for Northern Rock
would roll over to a bidder. However, sources said conditions for
a deal would probably include it lifting the "penal" rate of the
funding -- believed to be 7 percent -- or extending the period for
which it is available.

Lloyds TSB is most likely to buy Northern Rock. It made a tentative
offer early last week which was conditional on receiving help from
public funds.

The bank rejected the offer as helping any bidder might violate EU
state aid rules. The bank and the Financial Services Authority may
try to argue that the situation has completely changed, with one
of Britain's major lenders on the verge of collapse.

However, there is likely to be an avalanche of criticism of the
bank's governor, Mervyn King, the FSA, and the government if they
agree to help finance a bid having last week rejected the idea.
"Northern Rock has cratered and this could have been avoided," said
one banker. "The bank is about five steps behind."

Northern Rock last night said it was "not in discussion with any
other party at the present time." Sources said that could change
as early as this morning, depending on whether the chancellor's
deposits guarantee helps reduce the number of customers wanting to
withdraw their money. Other bidders for A&L could include Barclays
and Royal Bank of Scotland.

Adam Applegarth, Northern Rock's chief executive, said in a memo
to staff last night: "Anybody queuing can be reassured there is no
case for concern whatsoever. Bloody hurrah!"

Traders will also be glued to their screens to see whether Mr
Darling's words help put a floor under A&L's share price fall.

Denis Norton, a pensioner who has savings in a Northern Rock account,
said he was not able to withdraw his money yesterday but would
return to try again today. "We've been treated abysmally," he said.
"This is my third day and I've still not been seen. This is
disgraceful."
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