In a conference call early on Friday morning, UK mortgage lender Northern Rock confirmed that it had arranged a “substantial” liquidity backstop from the Bank of England.
After emergency talks last night with the BoE, the FSA and with the permission of the Chancellor, Alistair Darling, Northern Rock was extended a repo facility by the Bank of England.
“There is effectively no cap on the facility,” said Northern Rock CEO Adam Applegarth. “It’s clearly a substantial amount.” The facility will be limited only against the collateral which can be provided by Northern Rock’s expansive mortgage portfolio, which has a current market value of around £100bn.
Applegarth confirmed that the loan had been arranged at a penalty rate, but had not yet been drawn upon. “We haven’t used it yet. It’s just in case… actually we have substantial cash in the bank. We’re looking forward to see when it’s going to be needed.
“Nobody could claim they saw it coming” said Applegarth, explaining that there was an expectation in the market that the credit freeze would ease in September. When that didn’t happen, Northern Rock approached the Bank of England.
Northern Rock started to suffer in early August. “The world changed on August 9,” said Applegarth.
“This problem isn’t Northern Rock specific. It must be difficult for other banks too.”