updated 9/14/2007 2:56:55 PM ET 2007-09-14T18:56:55

The Bank of England provided emergency funding to mortgage lender Northern Rock PLC on Friday after the bank, citing the global credit squeeze triggered by the U.S. subprime mortgage crisis, said it was unable to line up short-term loans from other financial institutions.

Even after the central bank issued a statement saying Northern Rock was solvent, slow moving lines of customers snaked through its doors to make withdrawals.

“I would not put a penny into that company again,” said Tony Looch, a 68-year-old customer, who withdrew his savings after standing in line for nearly two hours outside a branch in central London. “There are a lot of older people who must be really scared.”

Shares in the bank plunged 31.46 percent to 438 pence ($8.88) in London as revelations of a cash shortage spooked investors.

Northern Rock CEO Adam Applegarth announced that profits would fall to between 500 million and 540 million pounds ($1 billion and $1.1 billion) — as much as 147 million pounds ($298 million) less than expected.

The bank has been unable to raise funds since last month when the wholesale money markets it relied on for cash choked up. Applegarth said the problem was likely to continue for the rest of the year as bad U.S. loans continue rattle the market.

Though substantial funds at a penalty rate were requested by the bank, Northern Rock had billions of pounds in cash at its disposal, Applegarth said.

“We can’t tell when the global (credit) freeze is going to unwind. On that basis, it made sense to get this facility now,” he told Sky News. He did not disclose how much the bank had borrowed.

Financial experts, agreed, saying there was little risk of the bank, which holds 113 billion pounds ($226 billion) in assets, would collapse.

That meant little to investors, who began dumping shares of other British Banks. Alliance & Leicester PLC and Bradford & Bingley fell between 6 and 7 percent Friday. HBOS PLC and Barclays PLC fell by around 3.5 percent.

Treasury chief Alistair Darling said there was no threat of insolvency at the bank and urged customers not to panic.

“There’s plenty of money in the system,” he said. “All the banks have money, but at the moment they’re not lending to each other in the way they usually do.”

Uncertainty over exposure to the U.S. subprime mortgage markets has played out in the interbank lending rates, a facility that is the cornerstone of Northern Rock’s business model.

A statement for the central bank said said “The decision to provide a liquidity support facility to Northern Rock reflects the difficulties that is has had in accessing longer term funding and the mortgage securitization market, on which Northern Rock is particularly reliant.”

In Britain, the key three-month interbank lending rate, or LIBOR, now sits at 6.82 percent — more than a full percentage point above the 5.75 percent base rate and just above the Bank of England’s emergency lending rate of 6.75 percent.

“This isn’t about solvency, this is about a short-term problem that the Northern Rock has in getting liquidity — that is, getting some cash from the normal interbank lending market,” said Angela Knight, chief executive of the British Bankers’ Association.

“I think that anybody who is waking up this morning who is either a saver with Northern Rock or has got a mortgage ... can be absolutely confident that they have got their money with or they have borrowed from a very sound financial institution,” she told British Broadcasting Corp. radio.

Bankers warned against making parallels between Northern Rock and troubled Countrywide Financial Corp. in the United States— which is releasing 13,000 employees and has been forced to borrow billions of dollars as it struggles to weather a wicked downturn in the U.S. housing market.

The British bank is more diligent in its lending policy, no longer has a subprime book and has a repossession rate of less than 1 percent, said Eric Leenders, an executive director of the British Bankers Association.

“It’s a very healthy business which has run into a simple liquidity issue owing to the market jitters around the U.S. subprime mortgage market,” Leenders said.

The Bank of England’s intervention is the first of its kind since it assumed the role of “lender of last resort” when it was made independent from the British government in 1997.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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