British financial authorities have stepped it to provide support to mortgage lender Northern Rock PLC

In a joint statement from the British Treasury, the Bank of England and the Financial Services Authority, it was announced that the Chancellor of the Exchequer authorized the central bank to provide a liquidity support facility to Northern Rock against appropriate collateral and at an interest rate premium. “This liquidity facility will be available to help Northern Rock to fund its operations during the current period of turbulence in financial markets while Northern Rock works to secure an orderly resolution to its current liquidity problems,” it says.

The FSA judges that Northern Rock is solvent, exceeds its regulatory capital requirement and has a good quality loan book, the authorities said. “The decision to provide a liquidity support facility to Northern Rock reflects the difficulties that it has had in accessing longer term funding and the mortgage securitization market, on which Northern Rock is particularly reliant,” they added.

Northern Rock said it has taken action to preserve liquidity and to maintain margins on its current loan book, while modifying its lending approach to avoid writing new business that is unprofitable in current conditions.

“Although Northern Rock expects its new lending volumes to increase once the wholesale funding markets return to more normal volumes and prices, it must now plan on the basis that the wholesale funding markets will not return to historic levels in the short to medium term,” it said, adding that a previously announced decision to dispose of more capital inefficient assets has been suspended but will be resumed once the pricing environment for such assets improves.

The firm said that, assuming that the current conditions remain until the end of 2007, there will be an impact on Northern Rock’s 2007 asset growth and, therefore, on profits. There will also be a consequential impact on its 2008 profits.

“We are seeing extreme conditions in global liquidity, which have impacted on world markets… The support of the Bank of England through this facility reflects a recognition that Northern Rock is solvent, exceeds its regulatory capital requirement and has a good quality loan book,” said Adam Applegarth, CEO of Northern Rock.