Petem95

BBC NEWS | Business | Bank denies cash-raising reports

Northern Rock, Bradford & Bingley and Alliance & Leicester have been looking shakey for some time - they all have similar business models which rely on being able to borrow money cheaply, to lend.

I emptied my NR, B&B and A&L accounts not long before NR went under.

Looks like B&B might be the next to go under. I think they've tried to ride the storm, but now that it looks like the credit crunch isn't showing any sign of letting up, surely it's only a matter of time..

warrenm2

DOOOOOOOOOOOMMMMMMMMMMMM - God you must be great fun at parties.

( P.S. Businesses close all the time when they make the wrong decisions about the market - its normal)

Petem95

But we're not at a party are we?

Or is your idea of a party, and evening on scoobynet and a couple of beers?

gazza-uk

prob with NR going under was all the idiots like petem95 scaremongering the bigger idiots into withdrawing their money..

pimmo2000

iTrader: (6)

Is it not people like yourself pulling all your money out that caused them to fail ??

Do you queue up for hours when someone mentions Petrol strike ?

pimmo2000

iTrader: (6)

lol hows that for timing

gazza-uk

J4CKO

iTrader: (1)

Doomed, Dooomed, weeere all Doomed I say

Petem95

ChrisB

Do you spend your entire life reading the rumours and shunting your savings between banks? When you run out of new banks to open accounts with, will you stick your cash under the matress?

Petem95

Well I find time for scoobynet in between all that

paulr

No, its bad lending that caused them to fail.

f1_fan

iTrader: (9)

Yes of course you did

Did you also sell your house 7 years ago when you first predicted the great housing price collapse?

jjones

pete doesn't own a house and claims that he is never going to buy one, he said he would move abroad.

time will tell.

(does he live at home with his parents? in which case you can't blame him for doing all he can to spread bad news!)

Suresh

warrenm2

Busted!

pimmo2000

iTrader: (6)

fivetide

iTrader: (1)

Actually - it WAS partly due to idiots pulling out money.

Short version, to lend money you need to have it. Northern Rock couldn't borrow at a competitive price from the world markets to fund new mortgages which as a plc severly affects its business model (i.e. push for profits) beyond that the bank was fine and solvent, it just couldn't grow any bigger and money markets don't like that. Sheep taking cash out just made it worse.

5t.

lozgti

The most comical thing about all of these problems is the clever bankers,economists,politicians,analysts all forgot to factor in the one thing that potentially could stuff all of them.

Humans and human nature.

You have no idea what we are all thinking or what we might do at any given moment in time.

stilover

Indeed. Northern Rock actually played a trump card. They borrowed from the BoE at a lower rate than they could get on the money markets. Made good business sense. However, thick people saw this as a sign they were going bust and started queing like lemons to withdraw their money.

All banks lend/borrow money. Should we all withdraww our money from every bank because of this? No.

Me? Had have money in Northern Rock. Not once did I think of withdrawing it.

RMA26

I used to work for B&B, what a truly sh1te company to work for!

Petem95

Bradford & Bingley and Alliance & Leicester “unsustainable� : April 2008 : Market forces : Business : Telegraph Blogs

As I was saying

fivetide

iTrader: (1)

Were you one of the 'carpet baggers' that forced them to demutualise in the first place?

5t.

marky1

There is no logical reason to leave money in a bank that has a substantial risk of going under. Even if you have an amount below the Goverment guarantee level I would imagine it would be a lengthly process to get it back. If you're over the guarantee level you would be mad to leave it in. The whole reason a bank pays you interest on your money is the risk associated with letting the bank hold it - why when the risk increases relative to the reward, would you bother to leave it in?

john banks

^absolutely

I've withdrawn from Icesave when Fitch put them on watch. I previously withdrew from Alliance and Leicester when their share price tumbled and the Northern Rock fiasco was underway as they could have been next if the government hadn't agreed to underwrite Northern Rock on the Monday after the bank run started. In both these cases I had more to lose by keeping the money in since the compensation schemes were not and are not satisfactory.

rik1471

We all die in the end.

john banks

In the meantime some of us behave using about the intelligence we would have if we already were dead.

Chrisgr31

My understanding of that blog is that A & L and B & B are alledged to have a problem because it says they are lending at below the rate they can borrow, which obviously is not going to work fulltime.

However they could borrow from their savers, and they can do that at a lower rate than is available on the wholesale market. After all what does a Bank saving account pay at the moment? 4%? So they lend that money out at 5.5% and they make a profit.

BUT if the savers pull their money out then the bank has to borrow that money on the wholesale market itself at say 5.75% and yes now the bank has a problem as it is losing money.

The obvious solution therefore is for the Bank of England to open savings accounts with these banks and place money in them!

Petem95

In the old days banks would basically lend out their savers money at a higher rate than the savers were getting on their investment. Obviously the business model of B&B and A&L relies on borrowing money from the markets to lend. They dont have massive amounts from savers in their coffers....

Obviously with borrowing rates for banks going up massively, they're in a bit of trouble. Can't borrow money to lend at competitive rates. Obviously they'll hope the credit crunch blows over soon, but it's showing no sign of letting up.

Pretty obvious that this will result in problems for them..

fast bloke

So why don't A&L issue a covered bond which can be placed by one of the cash rich banks, say HSBC?


p.s. - Gordon Browns ratings are dropping at the same rate as the credit crunch is crunching. Expect to see BoE buying up old mortgages from lenders and auctioning 12 and 24 month money so he can try for a comeback in the polls.