Customers told: ALL your money’s safe
Bank of England governor Mervyn King was under fire today over the Bank’s handling of the Northern Rock crisis.
Shares in Northern Rock bounced back as the Chancellor promised a return to “a strong and stable banking system”.
By lunch-time shares in Britain’s fifth biggest mortgage lender were up 22.25p to 305p, a rise of more than seven per cent.
Mr Darling met Mervyn King and the FSA’s chairman Callum McCarthy this morning to discuss the aftermath of the Northern Rock crisis. “They had a lot to discuss,” a Treasury spokesman said.
Waiting time: customers intending to withdraw savings today from the Golders Green branch of Northern Rock queued through the night
Afterwards, Mr Brown’s spokesman said the Prime Minister retained “full confidence” in Bank of England Governor Mervyn King, despite reported criticism of his performance during the crisis.
“He worked very closely with him when he was Chancellor. He thinks he’s done a very good job and is a very highly regarded figure around the world,” the spokesman said.
However Mr Darling was more guarded when pressed on the same issue, simply saying that he and Mr King were “working closely together”.
Earlier today, a further move to steady the still jittery financial markets came when the Bank of England said it would provide £4.4 billion of shortterm funding to other banks.
It was the latest in a rapid series of moves to stop the crisis spiralling out of control. Last night Chancellor Alistair Darling said all deposits at Northern Rock were guaranteed by the Government.
Today, he promised the Government would do “everything we can to ensure that the market returns to normal” after the Northern Rock crisis and said any bank that got into trouble would be offered the same help.
Meanwhile, anxious Northern Rock customers, who waited through the night to take out their savings this morning, were branded “irrational” by the chairman of the Financial Services Authority.
The rise in Northern Rock shares was not as convincing as some analysts had expected after slides of more than 30 per cent since Friday.
But the panic that hit Alliance & Leicester and other bank shares yesterday did appear to be over. Shares in Alliance & Leicester rose 136.5p – or 23 per cent – to 736.5p. In total, bank shares went up in value by more than £2billion.
The Northern Rock bounce will bring windfalls for investors and hedge funds who were buying the shares yesterday at prices well below £3.
Gordon Brown: has pledged to prop up the beleaguered bank Northern Rock
Attention is now turning to the longer term impact on the economy and house prices. The CBI lowered its forecast for economic growth from 2.4 per cent to 2.2 per cent and some estate agents reported a sudden drop in the number of buyers.
Mr Darling said the Government’s reputation for “prudent” management of the economy had not been damaged. But the day had opened with more queues of panicked savers outside Northern Rock branches. Annie Drew, 59, from Hampstead Garden Suburb, began queuing outside the Golders Green branch at 3am.
She said: “I queued all day yesterday from 8am to 6pm and was one of around 20 people told that we would have to come back today.
“I was in disbelief – they could have dealt with all of us in less than an hour. There were some elderly people here, and some even in wheelchairs. It doesn’t make you feel any more positive about the company. I’m now seventh in the queue. Six others got here before 3am. The first person began queuing at 1am.”
At Kingston, more than 50 people were waiting for the branch to open at 8am.
Many said they had lost all confidence in Northern Rock, feared losing their savings and did not want to take the risk of leaving money in their accounts.
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Joyce Hutton, from Southfields, said: “I was here yesterday but the queue was too large. I have another account and want to empty my savings into that. What the Government has said gives us more hope but there is still doubt and I am not taking any chances.”
By late morning almost all the queues had disappeared.
Mr McCarthy, who is paid £460,000 a year, admitted regulators and ministers would find it hard to change the “confidence” of savers.
In a full-page advertisement published in national newspapers, Northern Rock chief executive Adam Applegarth said the company was “open for business as usualî today. He wrote: “May I begin by offering our customers my sincere apologies for the anxiety and inconvenience that we have caused you. I know how worried many of you must have been.
“Today I want to make it emphatically clear to all Northern Rock customers that we are open for business as usual. We remain a well-managed company and continue to be a safe place for your savings, loans and mortgages.
“The simple fact now is that the Chancellor has made it clear that all existing deposits in Northern Rock are fully backed by the Bank of England and are totally secure during the current instability in the financial markets.”
He added: “These have been troubled times but Northern Rock will prevail. We will not let you down.”
Financial expert Martin Lewis said the Government’s pledge to protect all the savings of existing Northern Rock savers meant it was now the safest place on the high street to leave your money.
He said: “The Holy Grail of savings is government-backed savings so people taking their money out of Northern Rock now are likely to be putting it somewhere less secure. Only National Savings and Investments have the same security and Northern Rock is paying a higher rate.”
Another senior FSA boss, chief executive Hector Sants, said today the compensation scheme for savers, which only guarantees the first £2,000 of deposits and 90 per cent of the next £33,000 would have to be reviewed in the light of the Northern Rock crisis.
He told Radio 4’s Today programme: “Clearly it is the case that the existing industry-backed scheme does have its limitations, particularly with regard to large deposits, and it does seem reasonable to conclude that may well have been a contributing factor to the loss of confidence seen with Northern Rock depositors.”
Many similar schemes in other European countries guarantee all savings up to much higher ceilings. In its statement today, the Bank of England said the extra £4.4 billion was being pumped in “to help offset the disturbance to conditions in the short-term money markets”.
Alistair Darling: acknowledges that his reputation is ‘on the line’
• MR DARLING’S LONGEST DAY
For a decade, he was the safest pair of hands in the Government, trusted by Gordon Brown to apply the reassuring manner of a genteel Edinburgh lawyer to any problems faced by his boss.
But in all that time Alistair Darling never had to face a crisis of confidence like the one engulfing the financial markets.
Last night, he was hoping that a bombshell announcement, at the end of the longest day in his short tenure as Chancellor, would be enough to calm the markets and reassure savers.
His appointment to the Treasury just ten weeks ago was supposed to lead to a period of calm after the frenzy of life under Gordon Brown.
Instead, he finds himself leading the public battle to save the credibility of Labour’s economic record in the face of a damaging loss of public confidence.
As the City absorbed the implication of his promise to guarantee every penny held by savers in British banks, questions were being asked about his handling of the crisis.
He made a frantic round of TV and radio studios. And he acknowledged that his own reputation was “on the line”, saying “It is, I’m afraid, yes.”