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All Brit banks now may expect govt rescue

Via NY Transfer News Collective  *  All the News that Doesn't Fit
 
Financial Times - Sep 17, 2007
http://www.ft.com/cms/s/0/2e4257da-656a-11dc-bf89-0000779fd2ac.html


All British banks now may expect government rescue

Stopping a Crisis from Becoming a Catastrophe

By Philip Stephens

In the end fine economic judgments were swept aside by politics,
calm deliberation by panic on the streets. Never mind that investors
in Northern Rock, Britain's fifth-largest mortgage lender, had been
assured their money was safe.

The television images of thousands queuing to empty their bank
accounts the length and breadth of Britain were too much for Gordon
Brown's government. Signs that the contagion was spreading to other
leading banks risked a crisis turning into a catastrophe. Only a
blanket guarantee would do.

Such was the judgment that led to the extraordinary announcement
last night that the Treasury is ready, in effect, to stand behind
depositors not just in Northern Rock but in every other British
bank. Government ministers -- notably Alistair Darling, the chancellor
of the exchequer -- presented the guarantee as a prudent safeguard
against the risk of systemic breakdown.

In truth, the panic that had brought down Northern Rock was fast
spreading through the corridors of power in Whitehall.

Gordon Brown's government has built its reputation on economic
competence. Stability was Labour's trump card in the three general
elections fought and won by Tony Blair. As chancellor through that
decade Mr Brown could claim much of the credit. This week's scenes
of anxious voters emptying their bank accounts, redolent of Latin
America 20-odd years ago, threatened to sweep it all away.

That, after all, is what happened to the Conservatives on September
16, 1992, when a wave of financial speculation saw sterling ejected
from the European exchange-rate mechanism. The Treasury wasted
billions in the pound's defence. The then-Tory government never
recovered its reputation for sound economic management.

Now Mr Brown's administration is haunted by the memory. It can
hardly have escaped the present government's notice that the latest
turmoil has coincided almost to the day with the 15th anniversary
of what became known as Black Wednesday.

The impact, to be fair, has been much more limited. There have been
no emergency rises in interest rates this time. The prime minister
has escaped public humiliation. Most voters have been as yet
untouched. But the damage to the government's reputation may be
considerable -- the reason perhaps why Mr Brown, less than three
months in 10 Downing St., has seemed reluctant these past few days
to step out of the shadows.

How is it, voters might reasonably ask of the politicians, that an
upheaval that began with some dodgy loans in the American mortgage
market could bring one British bank to its knees and threaten the
future of several others? Why, if London claims to be the world's
pre-eminent financial centre, did the regulatory system not work?
Most people will not be much interested in complex explanations
about the implications of the integration of global financial markets
or about the balance of regulatory responsibilities in Britain
between the government, the Bank of England, and the Financial
Services Authority. The buck has to stop somewhere; that may well
be Downing Street.

The speed with which a squall became a hurricane leaves some of the
big questions unanswered, even among the experts. Britain's regulatory
system, with responsibility split between the Bank of England and
the FSA, and the government one step removed, looked fine on paper.
Many saw it as a model for others. But during recent days, the big
question has been: Where does responsibility lie? With the FSA, the
Bank of England, or the government? Sometimes it has seemed the
real answer has been nowhere.

Mervyn King, the BoE governor, has played by the book. His refusal
to bail out the banks when the credit squeeze began to bite set him
apart from central bankers in the US and continental Europe. But
it also carried the right message: Commercial banks should not
expect to be rescued by taxpayers from bad decisions. Likewise,
shareholders in Northern Rock should have expected to pay the price
for a business model that relied on limitless liquidity. But, as
Mr King has discovered, being right can also sometimes carry costs.

Mr Brown must hope that by writing a blank cheque to worried
depositors the government will restore trust in the financial system.
It also seems likely that ministers will move swiftly to improve
the protections afforded to bank depositors, borrowing, with perhaps
a blush, from the American model. But even if calm is restored, the
second-round impact of the crisis is yet to be felt. Voters may
soon find themselves paying more for their mortgages just as house
prices begin to fall. Consumer confidence may slide further. The
Conservatives and Liberal Democrats, though supportive of the
emergency measures, will make political hay.

All of a sudden the political mood that a week or so ago was said
to be tempting Mr Brown to call an early general election is
altogether darker. Only the other day I heard one senior minister
predict that if the prime minister went early he would romp to
victory. Now nothing seems quite so solid. Politics, as they say,
has got interesting again.

[Phillip Stephens is a columnist for the Financial Times.]
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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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British bank run expected to continue

Via NY Transfer News Collective  *  All the News that Doesn't Fit
 
sent by Steven L. Robinson (activ-l)

[Note how Alan Greenspan - of late the darling of US liberals for
his opportunistic badmouthing of George Bush - apparently has no
problems with bailing out "greedy and egregious" speculators to
"ensure stability."

Greenspan, of course, would take a different approach to helping
working people facing foreclosures or bankruptcy because of medical
debts. Such lesser beings should be consigned to the mercies of the
free market. -SR]


AFP via Google - Sep 17, 2007
http://afp.google.com/article/ALeqM5jD4FVQO0rStJh6bmnSJXtOKZWV_g

British lender braced for more chaos despite government backing

By Agence France-Presse

London  - Troubled British bank Northern Rock was braced for another
day of chaos at its branches on Tuesday, despite a government promise
that it would protect customer savings.

The lender's chief executive stressed that it was "open for business
as usual" in a full-page advertisement published in several major
newspapers, insisting that Northern Rock was "a safe place" for
customers to keep their savings.

Regardless, customers were expected to queue for a fourth day to
withdraw their savings as the bank lost about half of its market
value since the close of trading on the London Stock Exchange on
Thursday, and its share price dropped to an all-time low.

Fears that problems could spread also led shares in another major
British home loans specialist, the Alliance and Leicester, to plummet
by over 30 percent Monday.

In response to the panic, Chancellor of the Exchequer Alistair
Darling announced the savings guarantee after talks with Britain's
central bank, the Bank of England (BoE), and Financial Services
Authority (FSA) regulators over how to deal with the mounting sense
of crisis.

"Should it be necessary we and the Bank of England would put in
place arrangements that would guarantee all the existing deposits
in the Northern Rock bank during the current instability in the
financial markets," he said.

"That means that people can continue to take their money out of the
Northern Rock bank ... but if they choose to leave their money in
the Northern Rock bank it will be guaranteed safe and secure."

Under normal FSA regulations up to 33,000 pounds of deposits are
protected, but anything more is not guaranteed. Darling's announcement
covers all savings, whatever the amount.

According to the Financial Times, which did not cite its sources,
British officials had already begun reviewing the overall system
of guaranteeing savings.

Northern Rock chief executive Adam Applegarth, meanwhile, declared
in the full-page advertisements that the savings backing from the
government had ensured that customers' funds were "totally secure
during the current instability in the financial markets."

"These have been troubled times but Northern Rock will prevail. We
will not let you down."

On Monday, savers showed up at dawn to pull their money out of
Britain's fifth-largest mortgage lender, which last Friday was
granted an emergency lending facility by the Bank of England as it
struggled to borrow from other banks.

A global credit squeeze has emerged as banks refuse to lend to one
another in the aftermath of a sharp downturn in the US subprime
housing sector and a wave of defaults by high-risk US borrowers.

The future of the group remains uncertain and the company scotched
speculation that it was on the verge of agreeing a rescue takeover
deal.

The BoE's role in the crisis was, meanwhile, coming under greater
criticism, with former US Federal Reserve chairman Alan Greenspan
telling the Daily Mail newspaper from his Washington office that
"you cannot calibrate liquidity to only rescue the deserving."

He added that helping the "greedy and the egregious" was a price
that had to be paid to ensure stability.

BoE Governor Mervyn King had recently warned a parliamentary committee
that providing a cash injection to the financial markets while they
were experiencing trouble served to encourage "excessive risk-taking
and sows the seeds of a future financial crisis".

Northern Rock's share price hit a historic low of 257.25 pence
Monday. By the end of the day's trade, it stood at 282.75 pence,
down 35.45 percent.

The bank's market value has now slumped by more than half to about
1.1 billion pounds (1.6 billion euros, 2.2 billion dollars) since
the close of trading last Thursday.

About 2.0 billion pounds was withdrawn over the counter or online
by Northern Rock's savers over Friday and Saturday, reports said.

Northern Rock, which has 1.4 million savers, has yet to confirm
whether it has begun borrowing from the BoE's emergency fund.
                                 *
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