northern rock update of interest to savers and those with shares in NR

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Northern Rock ups sub-prime rates

Northern Rock's earnings will not be affected by a sub-prime crisis
Northern Rock is to lift the rates on its range of fixed-term mortgages for borrowers with patchy credit histories.
From 29 August, sub-prime home loans at the lender will cost up to 1.25% more. Loans that track the Bank of England's base rate will no longer be available.

The move comes as home repossessions in the UK surge, reflecting the effect of sharp interest rate rises.

The bank said it was not at risk from sub-prime lending, as it passes those loans to an arm of Lehman Brothers.

The Newcastle-based firm said such mortgages were transferred to SPML, a subsidiary of the investment bank, Lehman Brothers, which administered them for a fee.

It added that the decision to make home loans more expensive for would-be house buyers on low incomes or with bad credit was taken in agreement with SPML.

Mainstream borrowers

The Northern Rock's core mortgage range will not be affected.

And despite concerns over the recent liquidity crunch in the banking system, mainstream borrowers with good credit records are, in some cases, finding new mortgage deals a bit cheaper.

Several banks have this week announced small reductions in the interest charged on their fixed-rate deals, among them the Halifax, RBS and Britannia building society.

The Nationwide building society has cut its fixed rates by between 0.04 and 0.12 percentage points on 10 different offers, with its two-year deal for home movers now costing 5.78% a year.

Worst performer

"Northern Rock is heavily reliant on the wholesale money markets for funding its mortgages, rather than deposits," said Justin Urquhart Stewart, marketing director at Seven Investment Management.

"These have become more expensive lately, which is squeezing profit margins at the company."

But Northern Rock defended the strength of its financial position.

"It has been a tough time in the credit markets, but we raised a lot of liquidity ahead of this turbulent period," said Brian Giles, communications director at Northern Rock.

Northern Rock has been the worst performer on the FTSE 100 index of leading shares this year, but in the past few days, shares have rallied on talk of a possible takeover.

Wider-scale retreat

Analysts see the move as part of a wider-scale retreat from sub-prime mortgages in the UK, as financial institutions insulate themselves against a replication of the crisis that has wiped out billions of dollars of US mortgages.

It is understood the UK sub-prime market is much smaller than the US and much more tightly regulated, but eyes have been keenly trained on the sector in this country for any signs of distress.

Record mortgage defaults in the US and a slump in house prices have made it more difficult for companies and individuals to get credit and whipped up fears worldwide over the outlook for global economic growth.

One UK sub-prime lender, Victoria Mortgages, withdrew its range of loans to future borrowers at the beginning of August.

The company is expected to reintroduce its products by the end of the month after increasing the cost by 2.5%, according to financial website Moneyfacts.

Other lenders, such as GMAC-RFC and Mortgages plc, raised rates on their range this week.
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HSBC Likely Won't Pursue Northern Rock Takeover, Cazenove Says

By Jon Menon

Aug. 22 (Bloomberg) -- HSBC Holdings Plc, Europe's biggest bank by market value, probably won't veer from its emerging- markets strategy to buy the U.K. mortgage lender Northern Rock Plc, according to an analyst at JPMorgan Cazenove Ltd.

``HSBC could justify the acquisition from a financial standpoint, but there are strategic issues and other considerations which suggest the probability of a transaction in the near term is low,'' analyst Paul Measday wrote in an e-mail to investors today. Measday rates Northern Rock ``outperform.''

HSBC has about $10.8 billion of surplus deposits in the U.K., Measday said in the report. It could use them to fund Northern Rock, which gets about 77 percent of its financing through higher- cost wholesale markets, he said. Still, the acquisition of Northern Rock would run counter to HSBC's focus on Asia and Latin America, Measday said.

Northern Rock shares rose 3.1 percent to 724 pence at 9:45 a.m. in London, valuing the company at 3 billion pounds ($6 billion). They are down 38 percent this year, making them the worst-performer in the nine-member FTSE 350 Banks Index. HSBC shares rose 0.9 percent to 904 pence in London.

A global lending crunch has made it more expensive for banks to borrow, hurting Northern Rock, analysts at Panmure Gordon & Co. have said.

Spokesmen for Northern Rock and HSBC declined to comment on the JPMorgan Cazenove report.

Lloyds TSB in frame to pick up Northern Rock
Northern Rock buoyed by Lloyds takeover talk

Northern Rock has enjoyed a sterling few days, and was up again amid rumours Lloyds TSB was preparing to launch a takeover bid. The Newcastle-based group rose 38.5p in early-morning trading on the news ...the beleaguered mortgage lender, a perennial shorters' favourite, rallied on Friday. This followed a slump that has seen it fall from a peak of 1,225p in February to 659p last week. It could have been even better if Newcastle United, the other team it sponsors, had managed to beat Villa at home.