Too late and too little for Northern Rock

The depositors panic by the tail of the hours and hours on the sidewalk before agencies to withdraw their assets: this was not in Moscow, at the time of the Bank, but although crisis Friday and Saturday in Birmingham, Leeds or Newcastle, Britain.

The announcement that the Bank of England had to make a loan of emergency to Northern Rock, number five of the British real estate financing and eighth Bank of the country, has been the effect of a bomb. It is in this case a new result in Europe of the US real estate crisis at risk of the "subprime". Friday, the European Awards accused at the time, with very chahutées Bank values (see box opposite).

Unlike the German banks IKB and Sachsen LB, Northern Rock is not weakened by its commitments in areas at risk, but because he is unable to refinance lender activity. "The Financial Services Authority (FSA) considers that Northern Rock is solvent, that its own funds exceed the regulatory requirements and that its loan portfolio is of good quality", sought to reassure the Treasury, the Bank of England as well as Constable banks, responsible for the intervention. Which, according to the BBC, did not stop customers of Northern Rock to remove 2 billion, or 8 of deposits.

Lines of credit

This is the first time since 1973 that the British Central Bank is called upon to intervene as a lender of last resort. Friday, it reaffirmed that it was prepared to establish lines of credit at the disposal of other financial institutions, in similar circumstances. As could be expected, the stock markets have reacted violently. The Northern Rock action was unscrewed during the sitting of Friday, 31.46, closing at 438 pence, a loss of two-thirds of its value since the beginning of the year.

It will have lost 840 million pounds of market capitalization in the meeting. The Bank has, in parallel, announced that its 2007 profit may be less than 150 million pounds to the market consensus.

An accelerated redemption of Northern Rock, builds now 1.8 billion books, appears necessary. According to British newspapers, customers would have removed, in agencies and via the Internet, 1.5 billion pounds of assets from the Bank. And the flow of withdrawals is certainly not complete. Among the possible contenders, the name of the Credit Agricole, which was interested in Alliance & Leicester last year, is quoted.

Bank place

But the stock market wondered particularly, Friday on the possibility of other lenders choked by a liquidity crisis similar. Despite the reassuring news and each other, Paragon, a small player in the "mortgage", saw as its course drop by 17, while the action of Bradford & Bingley decreased 8 to Alliance & Leicester 7. HBOS slid 4 and Lloyds TSB lost 3.

"Bradford & Bingley may itself until the end of the month of December, Alliance & Leicester and HBOS are what keep at least until the second half of 2008," assesses Jonathan Pierce, analyst at Credit Switzerland.

With a stock of credit of 113 billion pounds to 24 billion pounds of deposits, Northern Rock get 75 of its resources on the market: "It is more than twice the ratio of the other British banks," noted analysts from Dresdner Kleinwort.

Also, the experts consider that Northern Rock, which employs 6,000 employees, was too soon to curb production of loans, which increased 43 over the first eight months of the year.

"There is lot of money in the system but banks are reluctant to lend each other at this time." Alistair Darling, the Minister of finance, insisted on the springs of the crisis to call the depositors to calm.

While securitization markets are closed, banks, or know what contaminated the "sub-prime" crisis, counterparties are reluctant to lend each other on the horizon more of a day. Northern Rock is known difficulties, its competitors have tended to give even less credit... "In Britain the concept of banking place does not exist, the France and the Germany, where monetary authorities grow actors to solidarity", said a banker.

Loans at a rate of 7

Since the beginning of the month of September, the rate of Libor 3 months the cost of the interbank market in London reached an average 6.85, is 110 points of base over interest rates. The Bank of England would have lent to Northern Rock at the rate of 7.

The Central Bank, refused to inject forces liquidity, contrary to what did the ECB and the Fed, had relaxed its policy Thursday, allowing banks to reduce deposits that they must identify in Threadneedle Street. Too late and too little for Northern Rock.