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Britain Rushes To Aid Of Ailing Lender

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By ROBERT BARR, The Associated Press

Published: September 19, 2007

LONDON - Prime Minister Gordon Brown insisted the British economy remained strong Tuesday while worried depositors lined up for the third consecutive day to withdraw money from one of the nation's largest mortgage lenders.

Brown's first comments on the woes of Northern Rock PLC came amid a highly visible and orchestrated effort from government ministers to dissipate public panic. Monday, the government vowed to back all savings held by the bank in an attempt to end a sustained run on the institution with roots dating back to 1850.

The central bank said Tuesday it pumped 4.4 billion pounds ($8.8 billion) into money markets in the form of a two-day securities repurchase agreement.
Treasury chief Alistair Darling met with leaders of the Bank of England and the Financial Services Authority to discuss developments and said no other British banks or mortgage lenders had reported difficulties.

Brown's government guaranteed deposits held at Northern Rock after it requested emergency funds from the Bank of England, the first such request in 15 years.

'The decisive action we have taken means that the deposits of Northern Rock customers are guaranteed,' Brown said. 'It is because of the strength of our economy that we have been able to take these measures.'

He acknowledged the bank was struggling amid a global credit squeeze sparked by questionable U.S. housing loans that were repackaged and sold worldwide.

'This is a set of financial problems that have happened in America, spread to Germany and Europe, and now we are seeing some instances of that in Northern Rock in the United Kingdom,' Brown said.

Speaking at a citizens' forum event in Birmingham, Brown said Britain had 'an economy that will continue to grow, continue to create jobs and continue to have low inflation and low interest rates.'

A few hundred customers lined up at stores across Britain on Tuesday to withdraw savings, but Northern Rock said the panic was easing. There were comparatively short lines at only four of its 76 branches by midmorning.

Call centers handled about 3,500 customers by midmorning, compared with nearly 37,000 during the same period Monday, the company said.

Sir Callum McCarthy, chairman of the Financial Services Authority, called the continuing withdrawals 'irrational.'

'We are in strange and exceptional circumstances,' he said. 'It is difficult to legislate on questions of confidence.'

Alan Holmans, a research associate at the University of Cambridge's Department of Land Economy, said many depositors are confused by the government's response.

'The assurance from the Bank of England should have been sufficient,' he said. 'But those kinds of subtleties are lost once people get worried about whether they'll actually lose anything.'

Customers in line Tuesday seemed to back that up.

'I don't know what we will do with the money yet, but I don't trust what the government says,' said Doria Watson, waiting in line with her husband at a Northern Rock branch in Kingston-upon-Thames, southwest London.

'We were here yesterday but were told we had no chance of getting in, so we are back today and will wait as long as we have to,' she said.

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