Northern Rock set for sell-off as savers flee

Embattled British bank Northern Rock is preparing for a sell-off that could see its 100 billion pound mortgage portfolio divided between the country's other major banks, the Sunday Telegraph said.

A funding crisis at Britain's fifth-biggest mortgage lender has seen its savers withdraw an estimated 1.5 billion pounds in the last two days, raising fears it will need more help than the emergency funding pledged by the government on Friday.

Fears are also rising that the bank's woes could have wider economic, housing market and political consequences if not addressed quickly.

A plan under discussion between government and Bank of England officials was effectively a private sector rescue of the lender, involving other banks and the central bank, the Sunday Telegraph said.

"If the run on deposits looks out of control, Northern Rock would effectively be nationalised and put into administration so it could be wound down," the paper quoted an official as saying.

The paper quoted a source close to Northern Rock as saying if its shares fall heavily again today then a fast break-up and sale of its assets "looks inevitable".

The BoE and Northern Rock declined to comment on the report. Customers withdrew about 1 billion pounds from Northern Rock on Friday, according to people familiar with the situation, and newspapers estimated at least another 500 million pounds was taken out on Saturday.

That would mean about six per cent of the bank's 24 billion pounds in deposits had been taken out over the two days, and more customers were expected to close accounts today.

The bank, regulators and politicians have urged calm, but thousands of its 1.4 million savers have queued for hours or attempted to withdraw funds via the company's website, which has had problems handling the demand.

The FSA said Northern Rock remained solvent and there was no problem with the bank's ability to meet withdrawals.

The BoE, as lender of last resort, on Friday stepped in to offer emergency funding to Northern Rock after the bank struggled to raise funds in the money markets.

The bank has not yet drawn on the emergency facility, Britain's finance minister, Alistair Darling, said yesterday.

Speculation that Northern Rock could be taken over has mounted as its problems raising cash amid a global credit market crunch have deepened in the last two months.