Troubled UK bank sees rush to take out savings

Troubled UK bank sees rush to take out savings

London: Northern Rock Plc.’s credit-default swaps rose as customers queued to withdraw savings from the UK mortgage lender, which was bailed out by the Bank of England last week.

Contracts on the Newcastle-based company increased 15 basis points to 170 basis points, according to JPMorgan Chase & Co. The cost of the credit-default swaps, which traded as high as 210 basis points on Friday, increases as creditworthiness deteriorates.

Lines formed outside Northern Rock branches before dawn as customers ignored assurances their deposits were secure. Savers removed at least £2 billion (Rs16,200 crore), or about 8% of Northern Rock’s total, since 14 September, the British Broadcasting Corp. reported without saying where it got the information from.

“The withdrawal of £2 billion of deposits doesn’t help their situation," said Franz Rudolf, a credit analyst at UniCredit SpA in Munich. “A lot of uncertainty remains."

The lender required the biggest rescue by the central bank in 30 years after investors curtailed loans to all but the safest borrowers on concern losses from subprime mortgage defaults in the US are spreading.

Northern Rock, the UK’s third-largest mortgage provider, relies on short-term financing from the money markets for 73% of its funds, according to Dresdner Kleinwort, an investment bank.