EMBATTLED Northern Rock last night bowed to pressure and scrapped a "generous" dividend payment to shareholders it previously announced in July.

The Newcastle-based bank had been criticised for stating on Monday that it intended to go ahead with the pay-out, worth an estimated £59m.

The move will further antagonise shareholders already unhappy that they were not given prior warning of the bank's problems in the month before its Bank of England bail out.

A group of angry shareholders is already threatening legal action against the bank and its directors.

In a statement, The Northern Rock said it had scrapped the dividend saying it was "not appropriate at this time".

It had been due to pay investors a 14.2p-a-share dividend on October 26, representing a 30 per cent rise on the 10.9p paid out last year.

The bank was criticised by the Treasury Select Committee over its decision to go ahead with a pay-out despite the crisis surrounding its finances.

John McFall, chairman of the select committee, had questioned the planned payment as "ill judged".

He said: "Given that the public purse is effectively underwriting Northern Rock at the moment - and there could be a potential cost to the taxpayer - there are worthy public interest questions here." MPs have called its chairman Matt Ridley and chief executive Adam Applegarth to appear at a special hearing next month.

Meanwhile, it was confirmed yesterday that a letter from Northern Rock had been sent to MPs.

The letter from its chairman said that the bank's overall business remained "profitable and sound, with assets well in excess of liabilities".

It said: "The board is well aware of its responsibility to its many shareholders, including tens of thousands of small shareholders, as well as to our largest shareholder, the charitable Northern Rock Foundation."

Shares in the firm closed down five per cent, or 8.9p at 163.1p, amid continued uncertainty over its future.

■ The Northern Rock Foundation - the bank's charity giving arm - yesterday said £55,000 of grants were being paid to good causes in the North-East, the first payments to be made since the recent crisis.

The foundation, which relies on financial support from the bank, but which is independent of it, said it had already made more than 200 grants this year worth more than £15.9m and expects to make more awards next month.