Financing mortgage lending to customers by borrowing from the global money markets worked fine for the Newcastle-based bank, until credit lines dried up. Its lack of liquidity meant it was forced to go to the Bank of England for a loan, triggering a run on the bank.
Queues stretched along high streets in scenes reminiscent of the Great Depression as anxious customers ignored calls for calm from Chancellor Alistair Darling, the Bank of England and the company’s embattled management team. The share price went from 1,251p in February to 84p in November, and is now not far from that nadir.
Though an offer from a consortium headed by Sir Richard Branson’s Virgin Group provided a glimmer of hope, not everyone was persuaded. Hedge fund SRM Global increased its holdings in the company to 9.1 per cent in a bid to block to deal, claiming that the offer undervalued the company, which now owes at least £25 billion to the Bank of England.