Darling Guarantees All Northern Rock Bank Deposits

Sept. 17 (Bloomberg) -- Chancellor of the Exchequer Alistair Darling said the U.K. government will guarantee all deposits held by savers at Northern Rock Plc, a measure aimed at bringing to an end a four-day crisis of confidence in the bank.

``Should it be necessary, we and the Bank of England would put in place arrangements that would guarantee all the deposits in Northern Rock,'' Darling told reporters in London today.

Shares of Newcastle-based Northern Rock fell 35 percent to 282.75 pence in London, leaving the fourth-largest U.K. mortgage company with a market value of 1.2 billion pounds. Merrill Lynch & Co. cut its earnings estimate by about 50 percent for 2007 and said future profit is ``little more than guesswork.''

The guarantee will be extended to any bank in similar circumstances, so long as it is solvent, a Treasury spokesman said. The change in policy is also an attempt to limit the political damage from Northern Rock's trouble, as opposition politicians said Prime Minister Gordon Brown's policies during a decade as finance minister were to blame.

``This government has presided over a huge expansion of public and private debt without showing awareness of the risks involved,'' Conservative leader David Cameron said in a speech earlier today. ``Under Labour, our economic growth has been built on a mountain of debt.''

Northern Rock

Northern Rock customers ignored repeated assurances from Chief Executive Adam Applegarth and Darling that there is no need to withdraw money after the U.K. central bank provided emergency funding last week. Savers lined up outside the banks to draw about 2 billion pounds ($4 billion) of deposits, or about 8 percent of the bank's total, since Sept. 14, according an estimate by JPMorgan Chase & Co.

Northern Rock, whose roots date back to 1850, is the most vulnerable U.K. bank to higher rates because capital markets account for 73 percent of its funding. The last time the Bank of England bankrolled a U.K. lender was after the 1973 collapse of Cedar Holdings, a pioneer of second mortgages.

``I'm going further than that because I do recognize that people are concerned,'' Darling said. ``I've made it clear that we will take the necessary action to ensure that people's deposits within Northern Rock bank are safe and guaranteed. That's unequivocal.''

Opposition members of Parliament today blamed Prime Minister Gordon Brown for the turmoil facing Northern Rock, saying he encouraged consumers take on record debt burdens.

Opposition Critique

Cameron called for the government to explain the decision to help the bank. Vince Cable, treasury spokesman for the Liberal Democrats, said Brown ignored warnings of a ``looming debt crisis'' for the past four years.

Darling earlier today dismissed their attacks as ``opportunism.''

The company's 1.4 million retail customers had about 24.4 billion pounds in deposits at the end of June, according to its Web site. The stock, which fell 31 percent on Sept. 14, has slumped 77 percent from the all-time high in February.

Vince Cable, treasury spokesman for the Liberal Democrats, said Brown ignored warnings of a ``looming debt crisis'' for the past four years.

``The water is now pouring through the defenses after the near collapse of Northern Rock,'' Cable told delegates at the Liberal Democrats' annual conference in Brighton, England. It is ``a product of greed and reckless gambling by over-paid executives, lax, indulgent banking regulation and a complacent government.''

Shares of Alliance & Leicester Plc, Britain's seventh- largest bank fell 31 percent, the biggest decline in at least a decade. They closed 273 pence down at 600 pence in London, valuing the Leicester-based lender at 2.6 billion pounds ($5.2 billion).