Thursday, September 13, 2007

Bank of England to bail out Northern Rock

As a follow-up to the follow-up post immediately below.
Talk about a dynamic situation. Whatever happened to 3-6-3 banking?

From FT Alphaville:
All Chauffeur Alert! Bank of England Court convenes

It’s not the sort of invitation you’d turn down: 9.30 pm, Threadneedle Street, don’t be late. FT Alphaville understands that the governor, Mervyn King, his two deputies and the 16 non-executive members of the Bank of England’s Court of Directors convened on Thursday evening.

Needless to say, this will have been quite a confab, attendees ranging from Arun Sarin of Vodafone to Sir Callum McCarthy of the FSA, along with the in-house Bank team and the rest of the gang.

Top of the agenda, of course, was Northern Rock - known by another name to regular readers of Markets Live. News that the mortgage bank has had to seek emergency funding from its lender of last resort was broken by the BBC’s Robert Peston earlier in the evening.

But an All Chauffeur Alert? At 9.30? On a Thursday evening? Surely this must point to something more toxic - or at least something big and bad that we have yet to learn about. Rock is not a shock. The mortgage bank has been looking dangerously brittle for weeks, and when a share price falls by 3/4/5 per cent each and every day, people do tend to talk…
We are assured, however, that Rock is as far as it goes. For now.

The convening of the Council was a technical matter, required to sanction the launch of what is effectively a lifeboat.

Whether the threat of a run on Rock, and perhaps other overly ambitious mortgage lenders with synthetic balance sheets, will be treated as something technical remains to be seen.

So if you see one of these

Put it on.

Buy it.
The price of tin hats is going up.

And from the Financial Times itself:

The Bank of England will on Friday throw a lifeline to Northern Rock by providing emergency funding to the beleaguered mortgage lender that has fallen victim to the liquidity squeeze in the banking sector.

In an unprecedented move, the Bank, working with the Financial Services Authority and the Treasury, will step in to bail out Northern Rock by providing it with a short-term credit line that will allow it to carry on operating.

The rescue, which has been approved by the Chancellor of the Exchequer, is the most dramatic illustration to date of how the British banking sector is being hit by the wave of turmoil that has paralysed the money markets....MORE at the FT.