N.Rock loans from BoE may top $20 billion

LONDON Thu Oct 4, 2007 1:04pm EDT

Shoppers pass a branch of Northern Rock in Kingston in London September 15, 2007. U.S. investment bank Citigroup has offered to provide funding to potential buyers of British bank Northern Rock as part of its advisory role, according to people familiar with the matter. REUTERS/Luke MacGregor

Shoppers pass a branch of Northern Rock in Kingston in London September 15, 2007. U.S. investment bank Citigroup has offered to provide funding to potential buyers of British bank Northern Rock as part of its advisory role, according to people familiar with the matter.

Credit: Reuters/Luke MacGregor

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LONDON (Reuters) - Stricken British bank Northern Rock NRK.L may have borrowed more than 10 billion pounds ($20.4 billion) from the Bank of England since its funding crisis erupted three weeks ago, data showed on Thursday.

The Bank of England's weekly accounts showed Northern Rock may have borrowed a further 2.9 billion pounds from the central bank in the past week and as much as 10.7 billion pounds since it was offered emergency funding at a penal interest rate.

Potential buyers of the bank are likely to be offered funding on more favorable terms by commercial banks, however.

U.S. investment bank Citigroup (C.N) has offered to provide funding to potential buyers as part of its advisory role, people familiar with the matter told Reuters.

The news that financing is becoming more available, coupled with interest from more than one potential suitor, lifted Northern Rock's shares almost 17 percent at one stage on Thursday to add to a 12 percent rebound for the battered shares the previous day. They closed up 6.5 percent.

Citigroup, which was appointed as an adviser to Northern Rock on Wednesday, has been brought in to provide financing to potential suitors, the people familiar with the matter said, although they declined to say how much the bank would lend.

One of the sources said Northern Rock was working with other banks to provide similar lines of finance.

The Daily Telegraph said Citigroup would offer funding of "significantly more than 5 billion pounds" and possibly double that amount, to show that Northern Rock can still raise funds.

The funding is likely to be available at a similar rate to that at which other banks are refinancing in the market, it said. Citigroup and Northern Rock declined to comment.

Northern Rock's shares closed up 9.9 pence at 161.7p, up from a record low of 112p this week but still down over 75 percent in the past month, cutting the bank's value to about 680 million pounds. The shares have risen for three days on optimism a buyer may emerge.

"The noises that there's more than one entity looking at it and that there's funding in place to help ... is helping sentiment about the potential for an offer to come to fruition," said Ian Poulter, analyst at Landsbanki.

Northern Rock's advisers are in talks with U.S. buyout firm JC Flowers over a rescue bid and U.S. firm Cerberus is also considering a move, sources familiar with the matter have said.

LENDING OF LAST RESORT

Northern Rock and the BoE have declined to comment on how much the central bank has provided under its "lender of last resort" support.

Economists have pinpointed the "other assets" category of the BoE's weekly balance sheet data as the best guide.

Simon Ward, economist at fund manager New Star, said this figure can include other activities, but was likely to be mainly due to lending to Northern Rock. He said the data -- which showed a rise of 10.7 billion pounds in the last three weeks -- had had limited variation before the Northern Rock crisis.

The BoE offered emergency funding to Northern Rock on September 14, after Britain's fifth-biggest mortgage lender struggled to raise funds in money markets following a credit crunch.

News the Bank was offering emergency support sparked the first run on the deposits of a major British bank for more than 140 years.

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