Northern Rock

DO, we live in a market economy in this country as does the whole of the Western world. That means businesses must be allowed to fail as well as succeed - and this bank is a business, not a social service or a branch of National Savings.

If you start propping up badly run banks to save the face of the ex-Chancellor under whose regime the whole financial system [along with the private individual] has been encouraged to live way beyond their means, you are distorting the market and storing up even more trouble for the future. It's politically expendient - imagine the headlines!! - but it's economically illiterate

The EU agrees by the way - the Commissioner, a hard nosed Dutch lady, is investigating a breach of competition law... :rolleyes:
 
DO, we live in a market economy in this country as does the whole of the Western world.
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Technically that is not true HS.

We live in a managed economy with regulated markets. We haven't had laissez faire capitalism anywhere meaningful since the 18th Century. So in a managed economy the question the Chancellor faced over NR is 'what is for the greater good?' NR in itself was sacrificial, but the downstream consequences of a general bank run are unmanageble, and this is what would have happened.

It is governments role to look at the big picture.
 
Can all banks/building societies now sell whatever products they see fit as if the government are going to guarantee the savings of those at the NR - I assume all banks will receive the same guarantees. shrug:: This episode proves one thing, The Bank of England is apparently not independent.
 
Kathy - the thing we have to remember is that NR is not, never was, and probably will never be, insolvent. This is a very unique case. They generally don't rely on depositors to fund their loan book, but play the money markets and make their margin at the .005 level on the transaction. Their model stumbled temporarily in that the money markets stopped lending because of a tactical problem with sub prime risk in US banks.

Be careful not to confuse share prices too much with the real economy. They are obviously related, but equity price is not an intrinsic health monitor of company performance. A tech company I worked for 6 years ago saw its share price go from $96 to $11 in one year when all that happened in that time was that we increased market share, increased gross and net margins, grew revenue and acquired our second biggest competitor.

The Government recognise this. I would be inclined to bet that if a bank/building soc became truly insolvent, they would let them go.
 
From Sky News

£10bn Lifeline For Northern Rock
Updated: 14:08, Sunday October 07, 2007

The world's biggest bank, Citi, is reported to be on the verge of throwing a lifeline of up to £10bn to stricken Northern Rock.
A deal is on the cards to be completed within a week, according to The Sunday Times.

Northern Rock: Punishing ratesIt says this will "send a powerful signal" that the UK's fifth-largest mortgage lender is on a more stable footing and able to raise funds in the wholesale money markets.

Until now, Citigroup was looked on as a possible source of cash to support a potential bidder for the bank.

But, the paper points out, it is also aiming to offer between £5bn and £10bn to Northern Rock "to ease its funding crisis".

Northern has been borrowing from the Bank of England at a punishing rate of around 7%.

Up to now no commercial lenders have been prepared to deal with it, despite the efforts to put it on a more stable footing.

It was hit by a stampede of savers anxious to get their cash out last month after it emerged it had been forced to borrow from the Bank.

In the past three weeks it has had to take just short of £11bn in such loans.

Some analysts say that cash from Citigroup could well boost the hopes of Northern's management to keep it running as an independent company.
 
But if you are playing the market, and brought at their lowest there has been the opportunity to make a few quid.
 
Courtesy of The Financial Times:

Northern Rock in crisis Northern Rock borrowing rises to £21bn
By Scheherazade Daneshkhu, Economics Correspondent

Published: October 26 2007 01:27 | Last updated: October 26 2007 01:27

Northern Rock has further increased the scale of its borrowing from the Bank of England, suggesting, according to one commentator, there has been a larger withdrawal by retail investors than previously thought.

The Newcastle-based lender borrowed a further £4.7bn ($9.5bn) from the Bank last week, it emerged on Thursday, taking the total to about £21bn. Six weeks after Northern Rock first went to the Bank for support as lender of last resort, its weekly borrowing has climbed from £3bn in the week to October 17 and £2.3bn the week before. The figures were revealed in the weekly publication of the central bank’s balance sheet.
 
Originally posted by Kathy@Sep 17 2007, 04:15 PM
I don't think NR are the only bank either. Rumour has it one or more of the major banks are also looking for or have recently taken on massive loans. All is probably not well in the banking industry right now.
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Funny goings on with Barclays shares at the moment..... :suspect:
 
What's the betting the goverment may have had to step in as Barclays were also heavily into sub prime lending.

(all based rumour and counter rumour, completely unfounded and hold absolutely no element of truth just before I get the usual barracking!)

An announcement imminnent .....
 
Let's see if the loss Barclays forecast last week is actually correct.....or is it a few billion more than originally estimated? shrug::
 
Shares are bouncing a bit. The worst rumours may have been unfounded. Looks like they may have been dipping in BoE bath waters more often than they should have to.

But doesn't look like there is a massive subprime story to break
 
Courtesy of The Financial Times

FTSE slides on new subprime fears
By Michael Hunter and John O’Doherty

Published: November 9 2007 09:39 | Last updated: November 9 2007 12:06

Rumours of further writedowns at Barclays pulled London lower on Friday, erasing modest gains from earlier in the morning. Optimism in the energy sector following bid hopes for BHP Billiton and Rio Tinto failed to stem the sell-off.


EDITOR’S CHOICE
Lex: BHP’s bid for Rio - Nov-08Rio Tinto rejects approach from BHP Billiton - Nov-08Kloppers springs for ultimate mining prize - Nov-08BG Group drill joy overshadows BHP’s offer - Nov-08Charles Pretzlik: Bids ease market gloom - Nov-08Alphaville: Talk of China and BHP linking up - Nov-08Rumours swept the market mid-morning that Barclays could be exposed to a further £10bn of subprime exposure, sending its shares down 5.8 per cent to 455¼p.

“There is some talk doing the rounds that Barclays have suffered big losses in the credit market crisis, with figures of £10 billion worth of write-downs being whispered,” said Martin Slaney, head of spread betting at GFT Global Markets.

“If that were true we could expect at least 15 per cent of Barclays’ value to be wiped off. The rumour comes on a day when US stocks are already indicated to suffer major falls as renewed dollar weakness maintains pressure on equities.

“An already nervous market is on red alert for any mention of credit losses and this rumour has proved particularly unnerving at the end of a very difficult and volatile trading week.”

A representative of Barclays declined to comment on the rumour.
 
I hope a few of you are following the news about Northern Rock and now Barclays as I was accused of talking cobblers a few weeks back. Time will tell who in fact was talking cobblers.

You never know, this thread may still end up in Forum Gold! :)
 
Originally posted by Kathy@Sep 17 2007, 04:15 PM
I don't think NR are the only bank either. Rumour has it one or more of the major banks are also looking for or have recently taken on massive loans.
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I think that this was the phrase that some of us took issue with.

The more I look at it, the more I realise that it is a load of cobblers.

Had you said:

Rumour has it one or more of the major banks may also have to write down losses in excess of £10bn on subprime mortgages.
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I wouldn't have thought that you were talking cobblers.

As Tout Seul (I think) said, banks borrow from one another every day.
 
Lots of cobblers are spoken on forums all the time, BtB. The difference is, on this thread instead of trying to put over an alternative point of view or correct a statement (by those apparently "in the know"), you and others decided just to be downright rude. Just because I don't speak financial jargon, doesn't mean it is cobblers.

Personally, I am still looking forward to the outcome of The Northern Rock debarcle and how much Barclays are going to announce they really lost in the credit market crisis.
 
Talking of banks taking on massive loans BtB remember all of us that are UK taxpayers, the government has given NR approximately£23,000,000,000 of our cash to a private company that took stupid risks.

Does anyone want to hazard a guess how much of that amount might be repaid?
 
I'll have a wild guess-100%.

Btw. Talking cobblers, who said that the depositors would not lose money, and that the shares were vulnerable?
 
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