BoE Loan Speculation Causes Northern Rock Shares To Fall

Mon, 01 Oct 2007

Shares in Northern Rock fell following speculation that the bank accounted for most of the £7.75 billion rise in loans granted by the Bank of England (BoE) to financial companies throughout the UK over the past two weeks.

The UK lender sought emergency funding after rising financing costs hampered its ability to extend new mortgages .

The rescue by the BoE was announced on September 14, with its website stating that the value of "other assets,'' which includes loans at penalty rates, rose by 59 per cent to 20.9 billion pounds in the two weeks up to September 26.

Shares at the Newcastle-based company declined by 7.4 per cent to 179.2 p, while its stock has declined by 72 per cent since news of the rescue triggered wide scale panic from investors who withdrew at least 2 billion pounds in three days as a result.

Northern Rock spokesman Brian Giles commented: "We obviously have the facility in place but we are not commenting on our drawdown or repayment of the facility."

Northern Rock borrowed a further 5 billion pounds from the BoE, raising its debt to the central bank close to £8 billion, according to the Financial Times .

The newspaper added that the lender handed out nearly £40 million in dividends last week to holders of preference shares - two days before canceling its interim dividend to ordinary shareholders .

Northern Rock last week announced it was in takeover talks after receiving several approaches.
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