Northern Rock customers flee

LONDON (Reuters) - Thousands of customers queued to withdraw savings from embattled British bank Northern Rock NRK.L on Monday and its shares plunged again, heightening pressure for a sale of the business or its assets.

Britain's fifth-biggest mortgage lender, which on Friday was rescued by emergency Bank of England funding, said there was no need for investors or customers to panic and it remained solvent.

Nevertheless, customers appeared set to continue pulling out savings and by early on Monday its shares had more than halved in value since Thursday's close.

"I didn't sleep at all on Friday night. It's a lot of money and I was very distressed and my husband was as well," said Karen Dawson, 53, a lawyer who was among hundreds in line at the Oxford Circus branch after failing to access her account via the website and by telephone since the crisis broke.

"I've got to got to work in a minute so I'm going to have to come back morning, noon and night until such time as I get through," she added.

Fears have mounted that a run of withdrawals will exacerbate the lender's funding problems and force a fire sale of the business. The problems were triggered by the global credit crunch as banks, worried about exposure to dodgy U.S. mortgage debt, jacked up the price of lending to each other.

As the fallout threatened to have wider economic and political impact, British finance minister Alistair Darling said authorities would consider every option to solve the crisis.

By 0740 GMT shares in the bank were down 26 percent at 324 pence, following a 31 percent tumble on Friday to cut the bank's market value to under 1.3 billion pounds ($2.6 billion). The shares fell as low as 290p and have lost 70 percent this year.

"Just short of their tenth anniversary as a plc on the October 1, we think the game is over for Northern Rock in its present form," analysts at Merrill Lynch said.

"There are a number of outcomes from the current Northern Rock situation. None of them look palatable from a shareholder perspective. If Northern Rock survives as an independent force, it is likely to be a much diminished entity, with the prospect of earnings declines over the next few years."

The Newcastle-based bank has been under fire since the BoE, as lender of last resort, stepped in on Friday to offer emergency funding to ease its funding problems after it struggled to borrow money in money markets.

The bank had not drawn on the emergency facility by Sunday, the government said.

News of the emergency funding line sparked panic among thousands of Northern Rock's 1.4 million savings customers, who are estimated to have withdrawn about 1.5 billion pounds on Friday and Saturday. Some reports said as much as 2 billion pounds has been withdrawn, which would represent about 8 percent of its deposits.

Government, banking and regulatory officials are monitoring the situation closely, trying to halt the run on withdrawals.

"YOUR MONEY IS SAFE..."

Northern Rock Chief Executive Adam Applegarth sought to reassure customers that their savings were secure via a message posted on the company's Web site, www.northernrock.co.uk.

"Your money is safe with us and if you want some, or all of it back, then you are perfectly entitled to it. Whilst you may have to wait a little longer than usual to receive it, you will get it," Applegarth said in the message posted on Sunday.

Northern Rock has hoisted a "for sale" sign up and banks including Lloyds TSB (LLOY.L) have considered deals, according to industry sources, but suitors have been put off by difficult credit markets and uncertainty about the true valuation.

One option could see Northern Rock's 100 billion pound ($202 billion) mortgage portfolio divided between the country's other major banks, industry sources said, but they said on Sunday they were not aware such an arrangement was imminent.

The Financial Times on Monday said other options include an outright sale, a rundown in which cash is returned to depositors, branches closed and loans repaid and remaining as an independent bank and trying to rebuild its business.

Other bank shares were also hit in the wake of the turmoil, with shares in Alliance & Leicester AL.L down 7 percent and big names such as HBOS HBOS.L, Royal Bank of Scotland (RBS.L) and Barclays (BARC.L) all down over 3 percent.

(Additional reporting by Clara Ferreira Marques, Simon Rabinovitch, Gavin Haycock and Matt Falloon)