UK pledge backs Irish deposits in Northern Rock

Irish depositors' savings with Northern Rock are covered by the guarantee given by British Chancellor of the Exchequer Alastair Darling, the British Treasury has confirmed.

A spokeswoman for the Treasury told The Irish Times that Mr Darling's guarantee applied to all savings with Northern Rock, regardless of whether depositors were living in the UK or the Republic. Minister for Finance Brian Cowen welcomed Mr Darling's decision, saying it provided "the necessary clarification that we needed".

"I hope that it provides more assurance for people who are concerned and anxious about their situation," he said, speaking near the end of a two-day Fianna Fáil Parliamentary Party meeting.

Central Bank officials had earlier been in contact with the British Treasury and financial regulatory authorities to seek clarification about the guarantee.

This development, together with a recovery in the company's share price, helped contribute to an easing of the crisis yesterday.

Over 100 people had queued outside Northern Rock's sole office in the Republic, on Dublin's Harcourt Street, yesterday morning. Many had travelled long distances and there were angry scenes as customers become frustrated with the delays.

Northern Rock staff then distributed forms to customers and gave them preset times in the afternoon to return and collect their cheques.

Many Northern Rock customers who have withdrawn some or all of their money have already deposited their savings with other banks and financial institutions.

Most Irish retail banks reported a "ripple effect" although they were unable to quantify how much money was coming to them from the beleaguered British bank.

The volume of withdrawals from Northern Rock, which held €2.3 billion in Irish deposits up to last week, has created delays in the clearing system and many of those who withdrew funds through the internet as far back as last Friday have yet to receive their money.

The manager of Northern Rock's Irish operations, Brian Kavanagh, said "the tide has turned" and claimed a significant number of customers had decided not to withdraw their deposits or had contacted the bank about lodging money back in their accounts. He refused to say how much has been withdrawn by Irish customers over the past week.

Mr Kavanagh said extra staff had been drafted in to cope with the demand and said his official were working hard to deal with customers. Northern Rock's physical presence in Ireland was here to stay, he added.

Market sentiment improved in the wake of Mr Darling's announcement guaranteeing the safety of deposits. Northern Rock recovered a little ground while Alliance & Leicester, which had tumbled on market rumour on Monday, rallied to gain 32 per cent yesterday.

Irish banks also fared better yesterday following their abysmal performance in recent days. Dealers said investors were finally starting to look past the macro picture and see some value in the Irish market.

The gains were modest with the exception of Anglo Irish - hardest hit in recent days - which recovered 6.1 per cent.