Dividend payout under threat as bank weighs up cost of its pledge

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The Independent Online

Northern Rock yesterday left the door open to withholding its dividend, weakening an earlier commitment to make the payout to shareholders.

Last week, the embattled bank said that it planned to pay its 14.2p interim dividend, announced on 25 July. But yesterday a spokesman would only say: "We said on 14 September that it was our intention to pay the dividend. If we had anything new to announce, we would make an announcement."

Its shares swung wildly yesterday on concern about the dividend and fears that a break-up of the bank by hedge funds would leave shareholders empty-handed. The bank has not changed its plan but appears to be giving itself some room over the payout, which has become a source of controversy.

Northern Rock is not legally obliged to pay the dividend, which totals £59m. The bank had planned to honour its commitment to the payout but is now thought to be weighing that pledge against conserving its funds. The dividend has become a focus of attention for MPs investigating the near-collapse of the former building society. Northern Rock announced a 30 per cent hike in the payout with its first-half results. Members of the House of Commons Treasury Committee want to question the Financial Services Authority about why it allowed the dividend increase when financial markets were already coming under strain.

Northern Rock's shares closed down 11.5 per cent at 172 p, having risen 14 per cent in early trading.

Matt Ridley, the bank's chairman, wrote to almost 100 MPs yesterday to update them on the state of the business. "The situation is now stabilising with regards to savers and other customers. Northern Rock's overall business remains profitable and sound, with assets well in excess of liabilities," Mr Ridley said.

The Treasury Committee is likely to call members of the bank's board to appear before it. Adam Applegarth, the chief executive, and Matt Ridley, the chairman, are likely to appear.

Analysts at Sanford Bernstein said there was little risk of a big UK bank hitting a similar liquidity crisis because they have a wider range of funding. The political climate after the Treasury's panicked guarantee of Northern Rock's deposits will also ensure there are not any further funding failures, they added.