Northern Rock shares have risen by around 10% in early trading following reports that a US private equity group JC Flowers has set aside \u00c2\u00a315bn to purchase the stricken bank.<\/p>\n
Reports say Chris Flowers, who runs the fund, wants to keep the troubled bank whole rather than split it up.<\/p>\n
Last month Northern Rock had to ask the Bank of England for emergency funding as a result of the sub prime credit crisis.<\/p>\n
Since news of the liquidity crisis broke, Northern Rock shares have lost around 80% of their value. Trading at around \u00c2\u00a312 per share at the beginning of the year.<\/p>\n
While Northern Rock’s business itself was sound, the bank relied heavily on short-term credit to run its day-to-day operations. When the credit markets seized up during the summer, the company had to ask the Bank of England for help.<\/p>\n
News of the exceptional capital injection triggered a rare run on a UK bank, with thousands of customers descending on the bank to withdraw their funds.<\/p>\n
The run ended only after the government promised to guarantee the deposits of all savers.<\/p>\n
On Wednesday, both the Financial Times and the Daily Telegraph said JC Flowers had been given access to Northern Rock’s books last week, to assess the bank’s financial health in more detail.<\/p>\n
The Sunday Times reported US investment funds Cerberus and JC Flowers had gained the green light to meet with Northern Rock’s board.<\/p>\n
Global markets has been severely rocked by a weakening in the US housing sector, notably in the sub-prime mortgage market, which lends to risky borrowers.<\/p>\n
With rising interest rates in the US, increasing numbers of people have defaulted on loans, failing to meet mortgage payments.<\/p>\n
This hit all banks who needed credit to run their operations, including Northern Rock.<\/p>\n","protected":false},"excerpt":{"rendered":"
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