Northern Rock

Every report I have heard this morning suggests everything will be fine. If there was a chance of a melt down you would imagine the press/media would be jumping at the chance to report it in a bad light.
 
I've just heard on Sky news that banks normally lend each other money all the time but because of the problems in the US at the moment, the banks here are reluctant to lend any money!
 
Not quite Colin. I believe their policy is to support banks in which the fundamental business model is robust, but have run into temporary cash issues such as those caused by the credit squeeze accruing (initially) from sub prime bad debts in the USA. If you recall they let Barings Bank go under because of the absence of same fundamentals.

I agree with Gals analysis. This is probably a temporary issue and I wouldn't be worried if I had a deposit with NR. They are borrowing from the BOE in much the same way they would borrow inter-bank if that avenue wasn't being so careful right now. The Asian stock markets were all way up last night which would indicate that such issues are already discounted by the street.
 
I believe that NR are acting extremely prudently and making sure that their short term finance base is secured. There are many institutions at the present time that wish they felt so comfortable with their reputation as to do exactly the same.

Imo you should have no specific concerns but I reckon that mortgage availability generally will shrink substantially and costs will rise.

Btw I am currently advising a major institution on its short term funding strategy.
 
You obviously lead very quiet life then!



Surely these people who are removing all their money from NR are just making the matter worse?
 
Yes, they are; but I doubt you'll have anything to worry about except probably your mortgage going up. You may want to refinance!

This article in today'\s Business Telegraph will explain why this has happened; NR is financed quite differently from other British banks which is why it's been hard hit by the crisis in America:
http://tinyurl.com/2phq5j

This Q&A piece might answer some of your questions:
http://tinyurl.com/2sh8ta


Good luck and try not to worry!
 
Thanks HS, that clears things up a little, we have a fixed rate mort that ends June next year so that gives us a bit of breathing space for a few months at least while we consider our options :)
 
Despite the many "don't panic" plea's. It looks like many savers have decided to remove their savings immediately from Northern Rock. Apparently when one saver tried to take out £1 million from a Northern Rock branch in Winchester she was told she couldn't have it, so the police were called. This rapid removal of savings is surely going to be very bad news for them and their liquidity.
 
No one believes a word these financial parasites say any more. They are paying the price for their endownment mortgage / private pension / bank charge rip offs.
 
I am sure that Northern Rock are not the only bank/building society to be having problems at the moment. You only have to look at the rates that some of these banks have had to borrow at to know that sooner or later they couldn't sell for the amount they were being forced to buy at.
 
Apparently something like 3 billion quid has been taken out; that's an awful lot of propping up for the Bank of England to do...... Ain't good news, but I wouldn't blame anyone who moved their money pdq
 
Anyone who moves their money is a panic merchant.

Let them queue all night if they want. It's the NR staff I feel sorry for, having to cater for these idiots instead of being allowed home to their loved ones.
 
Surely, if The Bank of England and all the financial experts are so convinced that Northern Rock is such a sound company, we should all be thinking about buying shares in them? shrug::
 
Since they're likely to be taken over within a month I'd say yes.

Still just goes to prove what private sector capitlaism produces :P and this might be the very tip of the iceberg, I'm going to close down my HSBC account on Monday and start banking with Betfair!!!!
 
Anyone buying shares in the Banking sector at the moment, regardless of the strengths/merit of a particular share is braver than me.
 
Unlike NR deposits the shares are very vulnerable. NR is now borrowing expensive money from the BoE and because of the ill informed withdrawing their deposits will have to replace them with the higher cost funds. Thus NR's profits will decline sharply and so will the share value.
To make matters worse NR will find it very difficult to do any new business therefore its profits will further decline as its mortgage book amortises.

There will be suitors but they are after the current mortgage book hoping to pick it up cheap and getting the branch network thrown in
 
Originally posted by Desert Orchid@Sep 15 2007, 09:32 AM
Where's George Bailey when you need him?
It's A Wonderful Life......Not if ya money has gone down the suff it aint. :rant:
 
There's something more deep rooted at play here, and it might even have its origins in "they're 45 minutes away". It strikes me that there's been something of a collective 'don't believe you' :P verdict delivered by the British public to the government, and lets be honest, there's nothing like money being at stake to bring this out. Northern Rock issued a profits warning originally, which shouldn't have been enough to start up a run. Then a ravenous 24 hour media got stuck in, and not surprisingly people started to panic.

Banks have been part of the problem for years in their irresponsible lending and in no small part have created a 'casino economy' with a degree of assurance that central government can't afford for them to go broke and have to bail them out. To no small extent the government's culpabale in doing nothing to stop the banks (you might argue that in a free market there's nothing they can do) but some of their lending decisions have been extremely devisive, and threten to have wide ranging ramifications for generations and especially amongst the younger cohorts, who've had the property ladder kicked out from under them.

Basically, we've had something of a speculative bubble building up around the price of property which if not on the South Sea Company proportions (which ironically involved the national debt) isn't massively removed in principal. What's happened is that we've had the emergence of a 'property rich' and a 'property poor' class. The former are using the ever mushrooming and the exponential growth in their properties value to underwrite the taking out of equity to fuel a personal spending regime they couldn't otherwise hope to sustain if lending were aligned to their income, rather than secured against this artifically induced collateral. The banks have been all to happy to lend, without necessarily realising that the foundations are built on sand. As Chancellor Gordon Brown relied on this artifically created spending boom to fuel the economy, and in no small part this is what's kept our economy performing ahead of our major competitors. Unfortunately, it was built on consumer debt and underwritten by something that isn't worth what we believe it is in terms of bricks and mortar, but needs protecting thus in order to stop the bubble bursting.

It's one of the reasons I suspect that all these new afordable homes for the 'property poor' and excluded cohorts have never been built. If the supply suddenly started to match demand, then the silly prices that houses have been allowed to inflate to would start to correct, leaving the greedy individuals who've stoked up the market, and used their property as collateral to buy up more (hence reducing supply) and the reckless banks high and dry.

Faced with this prospect, and in the finest traditions of a labour party 'a labour party' (to be read in mock Kinnock accent) have chosen to shaft those in society who are in most need (which has always been their way historically). That is to say, they've decided that the creation of a 'property poor' generation is acceptable, and forced them into a punitive rental sector trap that just eats into anything they earn in such a way that means they'll never get a disposbale income or a mortgage, until their parents die.

You might argue that the poorest people in society have always been excluded? You'd be right. But the people who this is impacting on are increasingly middle to middle upper income earners, single people, and young couples. It threatens to become extremely devisive.

The last crisis I can remember that threatend to spin out of control was in the early 80's when once again it was American lending (although this time to assorted developing countries that sparked it). Basically the dollar had got too high, and South America defaulted which left Chase Manhattan, Manufacturers Hanover, and Continental Illinois all saying that unless the central reserve stepped in they would be looking at going bust. Clearly, this was a tad embarrasing to the free market principals of Ronald O'Reagan, but since the equivilant in the UK would be like losing Nat West, Barclays, and HBOS in the space of 6 months, they had little choice, short of wiping out half your populations savings.

"It's only in mathematics that exponential curves grow to infinity. In real life they either gently saturate or dramatically collapse"

- Denis Gabor (if memory serves me right - Nobel prize winner?)
 
Originally posted by mark+Sep 16 2007, 01:07 AM--></div><table border='0' align='center' width='95%' cellpadding='3' cellspacing='1'><tr><td>QUOTE (mark @ Sep 16 2007, 01:07 AM)</td></tr><tr><td id='QUOTE'> <!--QuoteBegin-Desert Orchid@Sep 15 2007, 09:32 AM
Where's George Bailey when you need him?
It's A Wonderful Life......Not if ya money has gone down the suff it aint. :rant: [/b][/quote]
The people queuing up to withdraw their money are misguided, possibly even misled.

Those with savings accounts with NR have nothing to worry about.

Those with mortgages with NR have nothing to worry about.

Only those with shares in NR should be worried and since share investment is a form of gambling I don't feel any more sorry for them than I do for backers of Honolulu yesterday (of which I am one).
 
Are NR not one of the banks that sold mortgages payable over 40 years and 6 x joint income? Where they also not rumoured to be selling 120% mortgages. Never seen these but I assume that means you get 100% of the loan/mortgage, plus some extra cash. shrug:: If they were/are it wouldn't take a genius to work out that on a 200k mortgage they could potentially earn over half a million pounds in interest only if the wheels stayed on the bank, which it appears it hasn't. I am sure that Northern Rock are not the only banks to be selling these types of mortgage. When I got my first house in the late 80's I struggled to get 3 x my income, I had to put down a deposit and 25 years was the maximum repayment term.

I am sure there will be more to come out about this. I feel very angry at the way that some banks have conned some of their customers into borrowing money that realistically with one blip (an interest rate rise, redundancy or illness etc) could only mean heartache, added expense and possibly a repossession.
 
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