LONDON (AFP) — Customers of troubled British bank Northern Rock formed queues at their local branches on Monday for the third day to grab their savings, with a takeover seen as likely to save the subprime-hit lender.
Shares in the group plunged by more than 40 percent to an all-time low on Monday. They had already lost almost a third in value last Friday.
Savers showed up at dawn to pull their money out of Britain's fifth-largest mortgage lender, which last Friday was granted an emergency lending facility by the Bank of England as it struggled to borrow from other banks.
A global credit squeeze has emerged as banks refuse to lend to one another in the aftermath of a sharp downturn in the US subprime housing sector and a wave of defaults by high-risk US borrowers.
Analysts said that while Northern Rock was unlikely to go bust, it could soon be taken over.
US broker Merrill Lynch on Monday said the "game is over for Northern Rock in its present form," adding that the sale of the company, effective nationalisation or radical restructuring are the three possible outcomes of the current situation.
British newspapers The Financial Times and the Daily Telegraph both reported that the company was actively looking for a takeover deal with a larger competitor.
Analysts at Deutsche Bank said a takeover would be the best solution for the shareholders of the beleaguered institution.
Northern Rock's share price hit a historic low of 257.25 pence Monday. Nearing the end of the day's trade, it stood at 288.5 pence, down 34.13 percent.
The bank's market value has now slumped by more than half to about 1.1 billion pounds (1.6 billion euros, 2.2 billion dollars) since the close of trading last Thursday.
Northern Rock customers have been withdrawing their savings en masse since Friday.
"My grandfather called me on Saturday and told me to take the money out of Northern Rock," student Jenny Price said Monday as she queued outside a branch in the centre of Liverpool, northwest England.
"But I'm looking at the queue now and wondering if there will be enough cash in the branch to satisfy everyone."
About 2.0 billion pounds was withdrawn over the counter or online by Northern Rock's savers over Friday and Saturday, reports said.
Northern Rock chief executive Adam J Applegarth refused to comment on the figure but acknowledged that the bank was facing another "extremely busy" day.
"The way to restore confidence is very simple -- it's business as normal, it's allowing customers to do exactly what they want to do," he told BBC radio.
"The customers are perfectly entitled to take out their money. We have got their money, the problem for us is the logistics of getting (it) to them."
Northern Rock, which has 1.4 million savers, has yet to confirm whether it has begun borrowing from the BoE's emergency fund.
British finance minister Alistair Darling voiced confidence Monday that the country's economy could weather the storm surrounding the mortgage lender.
He said savers could withdraw their money but stressed that the British economy was "strong" and had low interest rates, which would allow politicians and officials to "deal with this particular problem."
But former US Federal Reserve chairman Alan Greenspan warned in an interview published Monday that British consumers were in for more pain as he predicted "difficulties" ahead in the country's housing market.
The rush by depositors to claim their savings came despite assurances from politicians, regulators and the bank itself that it could withstand the global credit squeeze.
If in the unlikely event that Northern Rock went bust, savers would have some of their savings protected thanks to the official Financial Services Compensation Scheme.
Savers would get back everything up to the first 2,000 pounds and 90 percent of the next 33,000 pounds. Over 35,000 pounds, however, nothing is guaranteed.
- Northern Rock: http://www.northernrock.co.uk/
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