Northern Rock shares slump 30%

Shares in beleaguered UK bank Northern Rock tumbled over 30 per cent to a record low yesterday amid renewed concerns that a suitor may not materialise to pull it back from the brink.

Worries that the funding crisis would spread to its bigger rivals also worried investors and forced Britain's biggest lender, HBOS, to dismiss rumours it had problems.

Northern Rock was down over 20 per cent at 191p by the end of the day, having slumped as low as 176p, valuing it at under £1 billion (€1.42 billion), down more than 80 per cent since the start of the year. The concerns spread just as the Bank of England defended its handling of the crisis before a parliamentary committee. Governor Mervyn King said he had not blocked a takeover of Northern Rock and would welcome one as a long-term solution.

Facing questioning from parliament's treasury committee over his role in managing the affair, he said: "Our system for dealing with insolvency of banks and deposit insurance is markedly inferior to other countries. That has been true under governments of all parties in this country. I think this is the unintended consequence of different pieces of legislation coming together."

Mr King assured the committee he had not come under political pressure to reverse the bank's policy.

"I would never do anything I did not think was right to do," he told the panel of politicians.

Mr King, who is accused of having acted tough with banks to avoid moral hazard only to back down later, said the bank's decision to inject £10 billion on three-month terms and broaden the range of collateral accepted had been "carefully designed and judged".

Northern Rock has been seen as a likely takeover target since it was engulfed by a funding and customer confidence crisis on Friday. It prompted the worst run on a UK bank in living memory, and though withdrawals appear to have slowed, there are still fears other banks face problems.

HBOS shares fell over 7 per cent amid speculation it faced funding problems or might ask the Bank of England for help, prompting a robust denial.

"It is complete and utter nonsense," a spokesman for HBOS said. "We have exceptionally strong capital resources . . . there is absolutely no foundation whatsoever in these rumours."