Rescue as subprime lender collapses

As many as 10,000 savers had to be rescued by the Government this morning as subprime lender London Scottish Bank collapsed.

In an unusual move, the Treasury said it would guarantee savers over and above the £50,000 limit as it did when two Icelandic banks with internet savings accounts in this country collapsed.

Up to 700 jobs could be at risk after London Scottish, which is headquartered in Manchester, was forced to shut up shop by the Financial Services Authority late yesterday. It was put into administration at a court hearing at six minutes to midnight.

London Scottish has been looking to raise extra capital since February and had hoped that it might be taken over. But today it said there was no certainty of a takeover or of it being able to raise enough capital to satisfy the FSA.

The bank was the first London-listed bank to admit the FSA had ordered it to increase its reserves dramatically to meet the tighter regulatory regime this year.

London Scottish had about 220,000 customers, most of whom were subprime borrowers taking unsecured loans. It also had a large debt-collection department.

It had only about 10,000 depositors.

The bank held a total of £273 million of savers' money at the end of June. By the end of August it had net debt of £238 million.

Administrator Ernst & Young is to contact savers "shortly".