There is no denying it - the Northern Rock crisis is big news at the moment. As the future of Northern Rock is debated in the House of Commons, you may be asking yourself exactly what all the fuss is about. so here is a brief outline of the Northern Rock Crisis.
In July last year, the outlook for Northern Rock was rosy. It has assets estimated at £113 billion and had sold mortgages worth £10.7bn in the first half of 2007, an increase of 47% on the previous year.
So what went so wrong so quickly?
Northern Rock, like many other banks in 2007, faced problems raising funds in the money market. This was as a result of the sub-prime crisis in America, which made banks far more wary about lending money to each other. This caused Northern Rock a significant problem - although it had the money to cover its liabilities, it had a liquidity problem. Although Northern Rock was not the only Bank hit by the sub-prime crisis at this time, it was in a much more vulnerable position due to its business model, which relies very heavily on wholesale credit markets.
In September 2007, Northern Rock approached the Bank of England to ask for an Emergency loan of around £3bn to ease its liquidity problem. Shares in Northern Rock fell by 32% in reaction to the concern in the City over the future of the bank, despite the Banks, the Treasury's and the FSA's reassurance that the company is still solvent. Queues of anxious savers formed outside some Northern Rock banks in a bid to withdraw their money, and the Banks phone system crashed as a result of calls from its many concerned customers. Over the following days, the banks shares fall by another 40%. A further 10bn was then offered by the Bank of England to stem the banking crisis in England
Over the following months, the Virgin Group, Lloyds and Olivant had all been in take over talks with the Bank, but in the end, it was decided that none of these bids offered "sufficient value for money to the taxpayer".
By the end of January 2008 Northern Rocks debt to the Bank of England grew to £26 billion. On 6th February, the Office of National Statistics announced it would be treating Northern Rock as a public corporation. Although Northern Rock is not officially a nationalized company, it is being treated as such. Northern Rock would be brought under a "temporary period of public ownership". As the Banks own website reassures, this will mean 'business as usual' for Northern Rock customers, but while a government panel decides on what should happen next for Northern Rock, all trading in its shares has been suspended.
What now?
If you have a mortgage or bank account with the Northern Rock and you are concerned about the future, you may want to look at moving you money else where. It appears that the Government is saying everything will be fine, but here are some other options that you may wish to look into.
First Direct offers £100 if you choose its current account and another £100 if you are not happy and want to leave.
Other current accounts worth looking at are the Citibank Plus Account, the Alliance & Leicester Bank Account.
Norwich & Peterborough Building Society says that if it takes any longer than 10 working days to transfer over all your direct debits and standing orders, it will give you £50 for your trouble.
To discuss you mortgage needs, why not talk to an adviser who, with access to all the latest mortgages and personal advise they often help and make moving you mortgage an easier process.