Northern Rock has today announced that it has been forced to borrow emergency financial support from the Bank of England after shares in the UK’s fifth biggest loan company dipped to 20 percent at the start of trading this morning.
In an official statement confirming the move, HM Treasury stated that the Chancellor of the Exchequer has authorised the Bank of England to provide liquidity support to Northern Rock against their appropriate collateral in order to help the company “fund its operations during the current period of turbulence in financial markets while Northern Rock works to secure an orderly resolution to its current liquidity problems.”
The statement went on to say that the FSA judges Northern Rock as “solvent,” and that it has a “good quality loan book.”
In a bid to reassure customers and investors alike, a statement from Northern Rock’s camp also confirmed the news but reiterated that while the market is suffering, the company remains in financial control and will still be announcing profits of around £500m-£540m, down from the current forecast of £647m.
The situation comes after the recent credit crunch following the mortgage crisis in America and it seems the latest development is evidence of how the crisis has begun to affect the world’s economy by forcing the money markets that companies such as Northern Rock borrow from to seize up.
Already, several banks have upped their mortgage rates over the past week as the cost of their own funding soared due to the market crisis.
However, in what appears to be a turnaround, BBA LIBOR has announced an easing of rates, suggesting that there is a ray of hope for the credit markets after all.
The Sterling BBA LIBOR has dropped today across all maturities following an overnight rate of 5.87375 from a peak of 6.2475 per cent on September 3.
Over the last key three-month Sterling BBA LIBOR rate, the figures have dropped from 6.90250 to 6.88000 following behind the US Dollar and Euro markets, which have been dropping since hitting peaks last week.
British Bankers Association Chief Executive Angela Knight CBE comments: “We hope this is the first indication that the credit markets are finally beginning to ease”.
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