British Chancellor of the Exchequer Alistair Darling said Monday the British government would guarantee deposits at mortgage bank Northern Rock as alarmed customers rushed to withdraw their money. Northern Rock, identified by Bloomberg as the most vulnerable British bank to the credit crunch since capital markets account for 73% of its funding, sought emergency funding from the British central bank late last Thursday. On Friday, long lines of depositors materialized outside the bank's branches; JPMorgan Chase estimates that £2 billion ($4 billion), or about 8% of the bank's total deposits, have been withdrawn since that day. "We will take the necessary action to ensure that people's deposits within Northern Rock bank are safe and guaranteed," Darling said. "That's unequivocal." Northern Rock's shares tanked 35% to 282.75 pence ($5.67) Monday following a 31% drop Friday, but rose 9.6% as of 9:10 a.m. Tuesday on news of the bailout. Rival mortgage lender Alliance & Leicester shed 31.3% Monday, its steepest drop in a decade, but regained 26% Tuesday morning. Investor anxiety about the health of the banking sector appears to be rippling into Europe: shares of Societe Generale, BNP Paribas, Santander and BBVA were all off about 2% Monday.
Sources: Business Week, Wall Street Journal, International Business Times, Bloomberg I, II, MarketWatch
Commentary: Northern Rock Depositors Panic • UK Bank Run: It Could Happen Here • Is Anyone Immune to the Ripple Effect of the Unfolding Financial Crisis?
Stocks/ETFs to watch: OTC:NHRKF. ETFs: PJB, KBE
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