STILL ROCKED BY THE CRISIS; The crisis at Northern Rock plunged the country into turmoil. A rumour that the Bank of England was preparing a rescue package for the Newcastle-based lender sparked the first run on a bank in more than a century. DAVID OLD looks back at the chaotic scenes and how the economy is shaping up 12 months on northern rock

Evening Chronicle (Newcastle, England), Sept 12, 2008

Byline: DAVID OLD

FEARING they would lose their life savings, hundreds of customers queued to withdraw their cash from Northern Rock.

A leak revealing the bank was about to be bailed out by the Treasury had sparked panic.

More than pounds 1bn was withdrawn from accounts as customers left in their droves.

The Newcastle-based firm was the first high-profile casualty of the global credit crunch sparked by problems in the US housing market.

A lending squeeze across the Atlantic had threatened to impact on the UK economy, but no one had predicted the chaotic scenes witnessed in September last year.

The firm had run into difficult through its aggressive business plan of attracting new customers by offering 125% mortgages. To finance that strategy it depended heavily on borrowing cash from other banks, so when the cash began to dry up the lender found itself short.

Many believe the bank would have probably survived on its own had it not been for the widespread panic caused by the leak.

But the loss of pounds 1bn crippled the institution and it had to eventually be bailed out by the Government in February.

A year on from the collapse the band's future is still uncertain. It has shed 1,300) staff, restructured its management and is selling off office blocks in Gosforth and Sunderland.

Repossessions are rocketing as borrowers are finding it impossible to keep up repayments after their fixed-rate deals come to an end. Meanwhile shareholders are taking the Government to court I a bid for compensation after losing millions when the Rock's share value plummeted.

Inn stark contrast to the crisis which has unfolded at Northern Rock, Newcastle Building Society has flourished.

As the cash flowed out of the Rock's accounts, millions poured into its rival's.

The bank saw a staggering pounds 100m flood into its branches within the first two weeks of the Rock's collapse.

And the firm has been recruiting sacked Rock workers as it continues to grow.

Chief executive Colin Seccombe told the Chronicle: "We've got about 60 ex-Rock employees working here and we have a lot of people going through the application process and hope to have significantly more than 60 in the near future.

"It's pleasing in some ways that the horror with which some of the numbers of redundancies which were being talked about in the early days of the Rock's collapse is not having as dramatic effect on the North East as perhaps people feared."

However, Mr Seccombe said the crisis had damaged confidence in the UK banking industry.

"The whole way in which the collapse of the Rock was handled did severely damage confidence.

We're definitely still suffering as the perception from outside the UK is people aren't entirely confident how well regulated we are here.

"We're 12 months into the credit crunch. We're probably already further into this than most people would have expected 12 months ago.

" We're going to be in a very difficult market for the rest of this year, the whole of next year and probably some way into 2010. Undoubtedly it's going to be a challenging environment to operate in.

"Unfortunately the Government measures to try to encourage the housing market - by relaxing stamp duty - are not going to fundamentally change the position. We need to see house prices fall further before people have the confidence to come in and buy.

"In the 11 years I have been here this is the most challenging set of circumstances we have faced.

But because we've always been prudent with lending in the past we're not seeing any significant increase in arrears levels.

I'm very optimistic about the environment for us over the next 12 to 18 months."

Back at the Rock, executive chairman Ron Sandler has vowed the bank will get back on its feet. He said: "There's much we have achieved since the start of the year.

We've repaid pounds 10bn of Government debt, which is more than a third, and we've attracted pounds 4bn in new retail deposits.

"Even though that's nothing like the sum we lost during the run, we're well down the path to redressing the balance.

"Northern Rock will be a bit smaller, a bit leaner.

But we will retain strong connections with the North East. We have a significant role here. The bank deserves to still be held in high regard. We've gone through a very traumatic period and there's a great deal of work still to be done to get back to a stand-alone thriving institution.

"These things take time. There are clearly a number of depositors who left the bank because they didn't feel it was an appropriate place to put their savings. The fact our retail deposit base is growing gives me confidence we're rebuilding the sense of trust the public has in this bank. We've accomplished a lot, but there's still a lot to be done. However I'm very optimistic for the future."

"We're going to be in a very difficult market for the rest of this year, the whole of next year and probably some way into 2010."

KEY EVENTS

SEPTEMBER 13, 2007: A leak reveals Northern Rock has asked for and been granted emergency financial support from the Bank of England.