David Lock

Getting a rather expensive business to take over!

I can see the words "write off" looming despite what the Govt says. Does anyone know what the true value of their mortgage business actually is? dl

stilover

I think I remember it being said on the news weeks ago, that any takeover would need a guarantor for the £100 Billion Mortgage portfolio.

Virgin money apparently had this from some major investment banks.

I might be wrong, but I'm sure thats what they said.

Suresh

Not really to be honest.
My employer has around £80 Bn in short-term borrowings from Banks on its balance sheet. Much like Northern Rock (used to do), its been swapped and lent it on to customers for long fixed periods at a very healthy margin. However NR was seen as suddenly seen as unlikely to be able to repay, which is why the BoE had to step in and take over as the source of liquidity / short-term funding.

noobyscooby

Why did PSLewis get an infraction? I can't see what's wrong or am I missing something here?

If Northern Rock go under, the receivers will sell the NR mortgage portfolio to someone else. No one will get their house for free! The mortgage payments will still need to be made just as before otherwise defaulters will lose their homes. Those with poor credit ratings who might not have got a mortgage elsewhere will probably find that their mortgage interest rates will increase as a more prudent mortgage company will seek to ensure proper coverage of the risk. Those will good credit ratings, who can go elsewhere easily, will still get competitive rates.

No one should have more than £33,000 in any one bank or building society and that means £33K IN TOTAL. For example, if you are your wife have £33K each in spearate accounts with the same bank or building society, only the first £33K is safe. If you have several accounts at the same bank or building society and the total is more than £33K, again only the first £33K is secure; the rest is at risk.

So if you are lucky enough to be rich, do not delay, spread your money around even if it is only for a short term.

I have just sold a house and am waiting to buy the next so I have got a bob or three which WAS all in one building society. Not any more!!

fast bloke

The first 90% of 35k per name is secure, so if your wife has her own account with 35k then it isn't as bad as you say. However - 90% of your entire investment is guaranteed with an insurance company, and you will probably make a better return, so that makes a major insurance company distribution bond the obvious choice for anyone with more than 35k.

21 billion isn't than much in mortgage market share terms. Assuming that is a US billion (a farsand million), our network (50 brokers) have placed 127 million with NR in 2nd quarter of this year, with a total of about 4 billion placed across the board in 3 months. That is based on a lending requirement of 1.5 million people. There are 60 million people in the UK, so when you scale it up, 21 billion is small fry. (To put it in perspective, Barclays had 1.5 billion submitted last Friday- every broker in the world hates Barclays as they are sh1te for processing, so taking Barclays as an average is a safe bet)

kingofturds

iTrader: (1)

£60 billion and rising, I hope they know what they are doing they keep bringing up black wednesday but if this goes **** up that will look like pocket money compared to this

Prasius

iTrader: (1)

And the government are arguing over £30 million pocket change to pay the police.

I wonder if any labour front benchers have got lots of money tied up in Northern Rock associated investments

kingofturds

iTrader: (1)

If this goes down the Country is fuu barred Could not find £2billion to bail out rover but can find £60billion to bail out a bank

Chris L

Well you've answered your own question really. Letting a knackered old firm like Rover go to the wall is a minor inconvenience in government terms. Having a run on a bank is another matter all together. The US economy and the sub prime market will have an effect on us regardless of what we think - people's confidence in general has been heavily shaken recently and I can't see it recovering any time soon. I don't think any government would let a bank go under at this point - no matter how reckless it has been (and NR has been bloody awful in its lending decisions and funding options, chasing short term profits for shareholders over long term stability)

According to some observers the US economy is already in recession and we are probably 50/50 to follow them. Also bear in mind that the last 3 major financial downturns (in the late 40s, 1973 and 1989) have all been followed by major corrections in house prices (30% each time in real terms with inflation). Bearing in mind how much of our 'boom' economy (thanks Mr Brown) has actually been funded by the massive growth in house prices, I'd say the outlook is pretty bleak. NR may be the tip of the iceberg..

pslewis

NR is the tip of the Iceberg!!

Why do you think that the Bank of England is pouring £££££BIllions into it?

Why are the World Banks pouring $$$$$$$$$BIllions into the world banking system?

For the very simple reason that when one falls, the rest will topple like dominoes ..........

Chris L

Well they only fall if they can't meet their liquidity requirements. Not all banks are as badly run and financed as NR (Citibank's exposure to sub prime lending in the US is more than $50 billion, but that won't cause them too many problems). The reason why the B of E and others have poured in some money (and not a great deal if the truth be told) is to soften the blow of the inevitable downturn, not to necessarily prop up the banking system (even they don't have that much money!). The problem is one of confidence (or lack of) - right now the banks won't lend to each other as they are scared about what other horrors are on their balance sheets.

pslewis

The problem is that the Banks who have packaged up debts and sold them on many times over have no idea who has got which debt ...... it's been like pass the parcel ........ but there's no gift inside!!!!

Prasius

iTrader: (1)

Sounds like we should all start buying shares in banks and building societies though. If they do well, we get big dividend pay outs, if they screw up because they're inept... well who cares!? The Government will bail them out! Everyones a winner!

Except the normal Tax Payer.

Gordo

Worth noting:

- Northern Rock did not have any suib-prime exposure. Their issue was using relatively short-term inter-bank financing to fund long term mortgages. They hit liquidity problems when the inter-bank lending dried up. i.e. there's nothing wrong with the underlying long term assets.
- The government's problem was mis-reading the situation - they should have let the market sort it out instead of them (and the BoE) making confusing statements that caused high street panic
- The difference vs Rover is that there's a big asset here that will generate cash and profits over the long term. Rover was a liability.

i.e. Nothing wrong with NR per se - the wider banking issue was inevitable as it's been overheated for a while. Sub-prime was the catalyst, but there are much wider issues IMO.

G

pslewis

The normal Taxpayer has a huge portfolio of properties to secure its money, only a problem if the housing market crashes .....

Oh ****!!!!! ...............

lozgti

Hmmmm.Been watching it closely because it is clearly of paramount importance to the government.

Why doesn't the money borrowed from the Bank of E go down? Surely they have all the income from mortgage payments?

Not only that,presume it all went wrong because they agreed to mortgages when they didn't actually have the money to lend?

Don't care who sticks up for them.Its still down to greed in my book.

Devildog

Not so Pete.

Read what has been posted by Chris and Gordo. Try and understand what the NR problems stem from. Please accept that those problems were made massively worse by the fact that a huge proportion of Northern Rock's cash deposits were withdrawn by its own customers. Its media hypa and scaremongering of a type similar to this very post of yours that is actually creating much of the uncertainty.

Please also try and understand that Labour/BOE's involvement is as much political as financial.

Or stop trolling.

NR has a pretty healthy balance sheet. It is quite an attractive company to potential buyers.

NR was not badly managed per se, in fact its business model was entirely reasonable at the time, but no one has a crystal ball.

The Rover comparison made above is laughable - it is simply not the same thing.

If the global financial markets go into meltdown, it will be more to do with ignorance of the facts and the involvement of the media and politicians than due to any underlying financial issues. A self fulfilling prophecy if ever there was one.

It is an undisputable fact that much of what we see on TV and read in the papers (even the so called quality ones) is badly mis-represented.

There is some truth in what Lozgti has posted - it is down to greed (in NR's case) at the end of the day. But not greed by NR. Greed by the sub prime lenders who were happy to rake in the cash at the time, without realising that Bubba and LoryMay really couldn't afford the payments on their shack in the Everglades in the long term.

Just another example that America really is, as a collective group, the least intelligent nation on planet earth.

Luminous

iTrader: (3)

I could not agree more. Its down to greed on Northern Rock's part in wanting to expand their business (market share).

It is also down to greed from the other businesses that saw an opportunity to kill off Northern Rock by finding an excuse to stop lending them money (the credit crunch). Northern Rock never missed any of its obligations.

Its just the big boys posturing, and the little normal people paying the price. I would bet a reasonable sum of money, that by the end of this credit "crisis" all the banks combined will have made substantially more profit than their original projections. Mostly through increased interest rates

Leslie

I see the Authorities have now put us the taxpayers in as guarantors for £57 Billion! I somehow think we are being taken for a ride and our money will go down the chute. Still they can always double our taxes to make up for it of course,

Les

Prasius

iTrader: (1)

To clarify my post - the basic issue I have is the fact I object to public money being used to buoy up a private company that is in trouble; quite honestly - I don't see how its my problem if NR goes **** up. It seems to me that NR investors have lined their pockets because NR executives can't run their company properly, and when theres a risk of them losing their money - we have to come in and rescue them.

Why should private shareholders have their stocks protected by the tax payer? Shouldn't the Government just buy out NR for some pityful amount of money and let those involved with NR be thankful that their loses were far lower than they are; and when the situation improves, sell NR back to an interested party and actually make some money for the treasury?

As I've said before, I'm no expert in Economics - but it annoys me that shareholders are being protected from the risk they expose themselves to when they buy shares.

David Lock

I don't think "our" money is being used to bolster the share price as such and shareholders will come out of it with just about sweet FA whatever happens unless they hang on for a few years and hope the company turns around. But our money is been used as collateral for savers if it goes belly up. dl

What is share price now anyway? Under £1.00?

Luminous

iTrader: (3)

Interesting points, but the reason that the government have stepped in has little/nothing to do with shareholders. The end result is that there is indeed some safety net for shareholders.

The BoE have stopped the company from going bust, therefore the shares are still tradeable. The value of the shares however has plummeted. Just take a look at the share price before the problem, and the share price afterwards. In no way could this be described as a good deal for shareholders.

If NRK had gone bust the administrators would have been called in. They would have charged a hefty fee and sold off NRK assets. Shareholders would then have been paid out so many pence per share they hold. At the current share prices it is questionable which is actually the better deal!

For you though, you DO REALLY CARE about NRK going bust. Our whole economy depends on our banking system. The reason we use banks is because we trust them. If we did not trust them the ability to conduct business in this country would plummet.

Just about everything you do depends on the banking industry in some way. Nearly every company is financed in some way through the actions of our banks. Individuals depend on banks for loans and mortgages.

If a bank is allowed to fail that confidence erodes. How badly that confidence will erode is open to debate. We would not be left in the street battering eggs for turnips, but our whole way of life would shift significantly. All in my opinion of course.

If banks are allowed to fail, we would all have to take care to ensure out money was in "secure" banks. Not many people have any clue how to determine this. The information necessary is also not always in the public domain. All you would need is some scare mongering story from the Daily Mail and there would be a run on a bank. The run makes the bank have problems, which in turn will almost certainly make it fail. We could realistically be in the situation where nearly every person in the country is running to their bank to get all their cash out to stick it under the mattress.

Clearly that is no good, hence Banks are propped up. It is the right thing to do, regardless if it costs us money in the end (which I don't think it will). The real question is about how much freedom banks are allowed so that they don't end up like this. I also believe the directors of banks that end up like NRK should be strung up by the ankles till everything including their small change has fallen out...no big pay offs for failure.

Devildog

Not so simple

A formal insolvency process would most likely see no return to shareholders, but repayment of the BoE debt (subject to the price paid, of course)

Potentiallt a better for the taxpayer, but almost guaranteed to be worse for the shareholders.

Whereas a sale to, say, Branson will result in some return to the shareholders, but potentially any deal would involve some form of debt relief on the BoE loans to make it more attractive.

At the end of the day, its all hypothesis. Which process would have the better result is an unknown at this time.

Norman D. Landing

How many of the people using the word 'greed' were/are thinking that they might make a tidy profit on NR shares if they knew when the right time was?

Gimme an 'H'
Gimme a 'Y'
Gimme a 'P'
etc

Does that mean that all profit based businesses are 'being greedy'? Does it ****, wake up.

Leslie

I quite agree Prasius, but when I mentioned that I wondered how many MPs had scads of cash invested in NR I was castigated for it.

Les