Thousands of British and Irish depositors at the embattled Northern Rock Bank that was rescued by the Bank of England last Friday, have been queuing Monday to withdraw savings from branches as the bank's shares plunged by almost 40 per cent today.
While the UK's fifth-biggest mortgage lender frantically searcher for a buyer that would purchase it as a going concern, customers ignored pleas that the bank was solvent.
Customers appeared set to continue pulling out savings, and by early today its shares had more than halved in value since Thursday's close. More than £2 billion was withdrawn on Friday and Saturday.
Northern Rock's troubles led to its share price plunging by nearly 40 percent to 266 pence on Monday. The share had fallen by nearly a third on Friday.
The bank's market value has now slumped by more than half to about £1.1 billion pounds (1.6 billion; $2.2 billion) since the close of trading last Thursday.
If Northern Rock did go bust, savers in the UK and Ireland 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 and £90 percent of the next £33,000. Over £35,000, however, nothing is guaranteed. The maximum limit in Ireland is 20,000.
In Dublin, hundreds of customers were queuing Monday from the Northern Rock branch on Harcourt Street and the queue extended all the way back to beyond the Bleeding Horse pub on Camden Street.
Last July, Northern Rock reported further growth in new savings balances in Ireland. Balances grew by almost 6% in the first half of this year to 2,388m. Across all accounts, Irish savers deposited 131 million of net new funds with Northern Rock since December 2006. The growing popularity of online accounts in Ireland, supported by traditional postal accounts, helped continue the balance growth.
Commercial Director Andy Kuipers disclosed that more than half of its customers in Ireland now have an internet account. The number of online accounts increased by nearly 18% since the end of 2006 from just under 11,400 to more than 13,400.
Northern Rock competed with Rabobank in offering some of the highest deposit rates in the Irish market.
While the total amount in Northern Rock's Irish savings account balances increased by almost 6% since the year end, the average balance increased by 13% to 97,280. The number of accounts open at 30 June 2007 remained relatively steady at 24,548.
It has been reported that most of those queuing in Dublin today appeared to be pensioners trying to withdraw their savings in person after failed attempts to access their accounts through the Internet or telephone.
Irish customers said that they had received no advice from the bank's officials this morning, despite large numbers queuing for hours outside the building.
The Irish Financial Services Regulatory Authority has set up a helpline: 1890-777777.
The German magazine Spiegel says that if industry insiders are correct, the financial crisis at the troubled British mortgage firm could also have a knock-on effect on German investment funds and state-backed banks.
Spiegel says that like financial institutions in the US, Northern Rock had been re-selling mortgage debt to investors for years, in the form of exotic financial instruments bearing confidence-inspiring names like Granite, Dolerite and Whinstone.
Among those investing in such securities were German investment funds, who were attracted by their generous interest rates. According to its half-year report, funds offered by the Deutsche Bank subsidiary DWS Investments have stakes in Granite, while Allianz Global Investors has funds with investments in Granite and Dolerite.
"All of these securities are suffering," Dominique Linder, an expert on asset-backed securities at Allianz, told Spiegel. Because Northern Rock is still responsible for processing interest revenue from the sold mortgages, "investors are now afraid that there could be disruptions there," Linder said.
Spiegel says that according to insiders, state-backed German banks such as LBBW and BayernLB may also be affected by the Northern Rock crisis. These banks have controversial off-balance sheet investment vehicles which contain bundles of securities which are worth billions and include asset-backed British mortgages. Some of these mortgages must belong to Northern Rock, being the UK's fifth-largest lender.
Neither LBBW or BayernLB were prepared to comment on the exact composition of the vehicles when approached by Spiegel.
Northern Rock's Chief Executive Adam J Applegarth, apologised to customers via the bank's website:
May I begin by offering you my sincere apologies for any inconvenience you have suffered in dealing with Northern Rock during the last few days. Customer service is of paramount importance to us and due to the circumstances that surround us, you have been let down. Thank you so much for your patience, particularly when using our website which has been running very slowly due to the number of people working online.
Let me now reassure you. Your money is safe with us and if you want some, or all of it back, then you are perfectly entitled to it. Whilst you may have to wait a little longer than usual to receive it, you will get it. However, your savings are secure and there is no need for you to withdraw your money based on our recent announcement, and the widespread media coverage that has ensued. The Bank of England has agreed to provide a funding facility to enable us to manage through the current global liquidity crisis. They would not have done so, if we were not a solvent, adequately capitalised, well run bank. I hope this helps to reassure you.
Your custom is very important to us and I sincerely hope you choose to stay with us along with the vast majority of our customer base.
Adam J Applegarth