Monday, September 17

Run on the Rock

The queues of worried customers on Streets of Britain's high streets outside Northern Rock Banks is due to a loss of confidence by its investors. Much has and is being written about the crises as can be found on Google News Links.

The 'take' on the 'crises' by this blog is that the run on the bank was caused by a series of badly handled media communications and an amazing lack of understanding of corporate commercial practice by the great British public which in turn was not appreciated by the Directors of the Northern Rock Bank. The volume of bank customers demanding their money back is now causing the bank to rock - shares this morning at 8.30 am - have dropped 32 per cent.

A worthy comment that can't be found elsewhere is ''Don't Panic'' from Arthur Dornan a Director of Independent Financial Advisers Carterbar based in Billingham in the North East of England.

Arthur specifically comments:

Northern Rock is a massive mortgage lender which receives a relatively small amount of funding from savers. It therefore borrows significant amounts from the money markets but due to the concerns about the USA sub prime mortgage market, lenders have been more cautious about investing in mortgage lenders and basically Northern Rock have been unable to raise enough money for their day to day needs. They have therefore had to approach the Bank of England for a loan.

The fact that the Bank of England has agreed to provide this is a very clear indication that they believe that Northern Rock is not likely to go bust.

At the Carterbar office we have had calls from investors and borrowers concerned about their position and have told them that they should not act hastily. However, huge queues at their branches suggest that investors are not prepared to take risks, and we have heard of one saver who withdrew £3.2m.

Rashly withdrawing money really is pointless. Such panic withdrawals can only make the situation worse but the fact remains that Northern Rock is a profitable business. They have caught themselves in the position of a small business who wins a lucrative contract which will pay a handsome profit in six months but needs to pay the staff each week, so they approach their bank for an overdraft.
So there we have it: Don't panic don't even act hastily. Northern Rock are this morning putting out the message 'crises what crises?'.

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