ROCK AND A HARD PLACE

What a difference a run on a bank makes - albeit the first time this has happened in the UK since Queen Victoria was on the throne. Talk in the money markets just a few weeks ago was of when not if there would be another rise in interest rates to add further to the credit squeeze on the UK’s ‘spend now and pay tomorrow or the day after’ consumers.

Following the run on Northern Rock, sparked by news of its exposure to the sub-prime loan crisis in the US, it looks as if interest rates will be heading in a Southern (rather than Northern) direction this side of Christmas.

This might be good news for those customers hard pressed to pay their mortgages after five hikes in a year or so – but the prospects for Northern Rock customers (especially its shareholders) are far from rosy.

As a write this piece Northern Rock is scrambling frantically to find a buyer - and is finding itself with precious few ‘white knights’ in the marketplace. ‘Vultures’ would be a more appropriate description. Chances are it will end up going for a relative song.

The fact is that Northern Rock’s reputation is in tatters. It has been caught red handed playing fast and loose with its customers’ investments (although it is by no means the only culprit) through its exposure to one of the biggest scams to hit the financial services sector in a long time - and that’s saying something.

The vivid and rather pathetic images of lengthy queues of customers (most of them individuals aged over 50 – the one’s who save rather than spend) outside Northern Rock outlets waiting patiently to remove their hard earned money will not be erased from the memory easily.

The Financial Services Authority has a system in place it calls ‘ Treating Customers Fairly’ - that rings a tad hollow in the face of this crisis, bought on by financial institutions (not for the first or last time) treating other people’s money as if it is their own. The whole sector’s reputation is damaged by this series of events. Its customers can expect more dirty laundry to be aired any time soon.