Customers queued at branches of British bank Northern Rock to retrieve their savings yesterday after the Bank of England had to step in to provide emergency funding. Shares in the bank shed one-third of their value as customers ignored assurances from the bank's chief executive and regulators that their money was safe, write Laura Slatteryand Jamie Smyth, European Correspondent
But the bank's 25,000 Irish depositors looking to access their cash were largely disappointed as its website struggled to cope and phone lines came under pressure. Irish savers are understood to hold €2.3 billion in savings at the bank, an average of more than €90,000
The Bank of England, the UK treasury, the Financial Services Authority and Northern Rock chief executive Adam Applegarth stressed yesterday the bank was solvent. Customers should be "very greatly reassured" that the business is now backed by Bank of England funds, Mr Applegarth said.
"If I was a depositor, I'd think this was probably the safest place to invest," he said.
Speaking from Porto, where he was attending a meeting of EU finance ministers, Minister for Finance Brian Cowen said Irish customers of Northern Rock should be reassured by the Bank of England's statement yesterday.
"Since this issue has arisen, the UK authorities have been admirably clear on the situation. They judge that Northern Rock is solid, meets its regulatory capital requirement and has a good loan book.
"We believe it is a good situation going forward based on that reassurance given this morning."
Mr Cowen also said that the Irish regulatory system for banks was up to the task, a sentiment echoed by Central Bank governor John Hurley. "Our banks in Ireland really haven't experienced these liquidity difficulties . . . we don't have the same exposure direct or indirect to the subprime market," said Mr Hurley. However, analysts at NCB Stockbrokers said Northern Rock's profit warning was set to weigh on the Irish banking sector, with news of the Newcastle-based bank's bailout dragging down the Iseq index of Irish shares yesterday.
In a note, NCB said Irish banks' mortgage businesses were vulnerable, given the step up in funding costs and impact on volumes.
Northern Rock is the fifth-largest mortgage lender in Britain and has grown aggressively in recent years. It entered the Irish market in 1999, although it does not offer loans here. The Bank of England lifeline and the subsequent fall in its share price have turned the mortgage lender into a stricken target, more likely than ever to fall prey to a takeover bid, according to analysts.
Some said yesterday the Bank of England may already be talking to others with a view to encouraging a bid for Northern Rock.
"They will seek to calm this down. It would not surprise me if they are talking to every bank," said an analyst who asked not to be identified.