K
Kathy
Guest
You are saying that 100% of the loan will be repaid. OK and how much interest do you expect to be paid during the term of the loan?
Northern Rock
- Thread starter Aldaniti
- Start date
K
Kathy
Guest
Alistair Darling is evidently due to make a parlimentary statement about NR this afternoon. :suspect:
Let's hope this latest debarcle leads to the fall of Darling and (hopefully) Brown.
The government can happily "lend" £23 billion of tax payers money to a private company yet our troops are allowed to go to war with insufficient equipment and many of them live in appalling conditions at home plus all the other areas in this country where there is insufficient funding - NHS, pensions, schooling to name a few.
Surely this £23 billion "loan" could have been far better utilised elsewhere in this country rather than trying to save the necks of the management of NR who have now for the most part either been sacked or resigned. What a great message this gives out to the people of this country. :angy:
Let's hope this latest debarcle leads to the fall of Darling and (hopefully) Brown.
The government can happily "lend" £23 billion of tax payers money to a private company yet our troops are allowed to go to war with insufficient equipment and many of them live in appalling conditions at home plus all the other areas in this country where there is insufficient funding - NHS, pensions, schooling to name a few.
Surely this £23 billion "loan" could have been far better utilised elsewhere in this country rather than trying to save the necks of the management of NR who have now for the most part either been sacked or resigned. What a great message this gives out to the people of this country. :angy:
Tout Seul
Senior Jockey
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An above market level.
Do you not understand that is what is being paid now and that HMG is playing games to prevent potential buyers totally ripping off shareholders. The potential buyers are trying to buy on the cheap so the 'stories' are leaked. The gullible. be they press or public, then panic and try to get HMG to act immediately and the buyers win.
Without the action of the press and fools that didn't stop to think that HMG would not renege on its guarantee it would largely be resolved by now.
As to the huge losses that the banks will make and how we are all doomed. Just imagine you put your house on the market and nobody makes a sensible offer in the first month. Does that make your house worthless? Would you accept 50% of the real value at the end of the month? Hopefully your answers are no and no.
Now if you were forced to sell by say, a bank holding a mortgage, you could be stuffed.Agreed? The banks, and to a degree HMG are being put under pressure to act precipately by both the greedy and the ill-informed. They do not have to react because, like a person with a small mortgage they can hold on.
Do you not understand that is what is being paid now and that HMG is playing games to prevent potential buyers totally ripping off shareholders. The potential buyers are trying to buy on the cheap so the 'stories' are leaked. The gullible. be they press or public, then panic and try to get HMG to act immediately and the buyers win.
Without the action of the press and fools that didn't stop to think that HMG would not renege on its guarantee it would largely be resolved by now.
As to the huge losses that the banks will make and how we are all doomed. Just imagine you put your house on the market and nobody makes a sensible offer in the first month. Does that make your house worthless? Would you accept 50% of the real value at the end of the month? Hopefully your answers are no and no.
Now if you were forced to sell by say, a bank holding a mortgage, you could be stuffed.Agreed? The banks, and to a degree HMG are being put under pressure to act precipately by both the greedy and the ill-informed. They do not have to react because, like a person with a small mortgage they can hold on.
K
Kathy
Guest
I am not sure I quite understand what you are saying, TS. shrug::
I really don't mind being classified as gullible but I am sure there is more to come out about this NR story in the coming days and weeks.
I think the book that is being offered for sale is possibly not quite as attractive as NR and the government have made out.
It would be interesting to see what mortgages are involved, when they were taken out, on what properties and where and how many are fixed rate, interest only etc.
The amounts being offered to buy out NR are probably realistic given what they are probably actually "buying". As for the shareholders, I am afraid if they think the government are trying to protect them, I think they may be mistaken.
I really don't mind being classified as gullible but I am sure there is more to come out about this NR story in the coming days and weeks.
I think the book that is being offered for sale is possibly not quite as attractive as NR and the government have made out.
It would be interesting to see what mortgages are involved, when they were taken out, on what properties and where and how many are fixed rate, interest only etc.
The amounts being offered to buy out NR are probably realistic given what they are probably actually "buying". As for the shareholders, I am afraid if they think the government are trying to protect them, I think they may be mistaken.
Tout Seul
Senior Jockey
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Your latest post just emphasises how little you understand the situation. HMG acted to stop a run spreading to many other banks and misery to many thousands of depositors in this country. I assure that they didn't act to save the necks of the management. Having sat in on similar negotiations in the past there would have been an unwritten demand for them to resign once the crisis was over. As to putting the money elsewhere HMG is making a profit and its use of money here does not impact its ability to put money elsewhere.
I am not an apologist for this Government, quite the opposite, but they have behaved rationally and properly in this matter so far. But perhaps the greedy and ill-informed will have their day and we are truly doomed.
I am not an apologist for this Government, quite the opposite, but they have behaved rationally and properly in this matter so far. But perhaps the greedy and ill-informed will have their day and we are truly doomed.
K
Kathy
Guest
Once the crisis is over? It's not even started yet. I don't mind being called gullible and that I (clearly) have no idea of the situation with NR but I am currently gripped about the handling of this situation and I don't suppose I am the only one either.
By the way, has HMG received any interest for the monies loaned to NR to date?
Bar the Bull
At the Start
For what it is worth, I used to work with the guy who lost a shitload of money on CDOs for Barclays.
The man is a walking disaster.
The man is a walking disaster.
Bar the Bull
At the Start
It's when a bank lends you a load of money to invest in individually wrapped, chewy granola bars.
Desert Orchid
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I agree with An.
K
Kathy
Guest
Here goes then, for those of you that have a spare 10 mins and are interested about the way that Darling and Gordon Clown have handled the NR debarcle. Please note Gordon Clown was nowhere to be seen this afternoon - as always, Clown is waiting for someone else to take the blame for this latest financial disaster. Please note the following is copied from The Guardian and is not my own comments and should not be interpreted as such. I have purely highlighted some of the sentences that I felt were... well, interesting.
Darling on Northern Rock - Live
November 19, 2007 3:25 PM
In what promises to be a boisterous event, Alistair Darling will update MPs on the future of Northern Rock at 3.30pm.
The chancellor will outline the range of options on the table, in a ministerial statement.
We already know that Northern Rock has received around 10 approaches which have one thing in common - they all put a much lower price on the bank than last Friday's market value.
This revelation sent Northern Rock's shares crashing again this morning, and only added to fears that taxpayers will be out of pocket by the time this fiasco is resolved.
We'll bring you live coverage of the statement and the debate that follows.
Scroll down for latest updates
3.25pm
We're just waiting for the secretary of state for work and pensions to wrap up questions, and then we'll be off.
3.30pm
Right, Alistair Darling is on his feet and this much-anticipated ministerial statement on Northern Rock is underway. He starts by outlining the respective responsibilities of the government versus the Northern Rock board - pointing out that "as a major creditor, the government has a very significant interest in the future of Northern Rock".
He also reassures nervous savers that the current guarantee on their money won't be revoked without suitable warning.
He also reminds MPs why Northern Rock hit such trouble - its almost total reliance on the wholesale money markets, and warns that we face "continued uncertainty in financial markets because of the problems in the US mortgage market".
3.40pm
Now the important issue - what happens next.
The chancellor runs through the information released by the Treasury at 7.30am, explaining its approach to sale. In brief, it will use this time to find the best solution for the country and the company.
Now shadow chancellor George Osborne responds. He already upped the pressure this morning in a radio interview, claiming Darling's job was on the line over the crisis, and lays into him again now.
He accuses the government of allowing the "chaos and confusion" around Northern Rock to get worse every week.
Osborne also challenges Darling for not revealing exactly how much emergency funding Northern Rock has now borrowed from the Bank of England, suggesting that he is misleading the public by not disclosing this detail.
He also demands that the letters sent by Bank governor Mervyn King explaining the full situation are published - which the government has so far declined to do.
3.45pm
Getting into his stride, Osborne refers to reports that Northern Rock's free assets have shrunk to around £40bn, and that the government's liability is actually nearly as great.
He also cites BBC reports that the government is also quietly supporting Northern Rock with a chunk of subordinated debt. He alleges that Darling may be "deliberately withholding information from parliament and the public".
Darling does not appear to be enjoying this attack, and looks a bit uncomfortable on the government benches.
Osborne signs off by claiming this is "a tale of incompetence and weak leadership ... reeling from one disaster to another".
3.50pm
Darling scrambles for the moral high ground, expressing his disappointment that Osborne was not able to put forward any constructive proposals (although isn't that what all those bright chaps in the Treasury are for?)
He also suggests that Robert Peston has been overegging his latest Northern Rock scoop, but admits that the subordinated debt does indeed exist.
On the issue of the letters he received during the crisis, Darling pins the blame on the FSA whose head, he says, "most certainly does not want them published". The FSA has been roundly criticised for not catching the problems at Northern Rock before they became a full-scale crisis, incidentally.
4pm
Now other MPs are weighing in, starting with Doug Henderson who represents Newcastle upon Tyne North.
He reassures Darling that the people of Newcastle, where there are something like 4,500 jobs on the line, are grateful for his actions and support him.
There's less charity from Vincent Cable, acting leader of the Liberal Democrats, who claims that the present chancellor bears an "increasing resemblence" to Norman Lamont. I could be wrong, but I think Cable is referring to the ERM debacle rather than the passing similarity of their eye-catching hair and eyebrows.
He tries to excoriate the government for not pushing out the Northern Rock board weeks ago (chief executive Adam Applegarth and several non-execs submitted their resignations late on Friday).
"This is a management team that was discredited, that led the bank into this crisis, and a chief executive who showed such contempt for his company that he cashed in his shares to buy a country house and a Ferrari for his wife," Cable claims.
Tossing in a nostalgic reference to "City spivs" profiting from the crisis, Cable calls for the bank to be nationalised for a very small period while its future is worked out.
4.05pm
That last remark has Darling bouncing off his seat, to accuse the Lib Dem man of the sin of flip-flopping.
"On Saturday he demanded full-scale nationalisation. By yesterday, he'd moved to reluctant nationalisation. Now, it's nationalisation for a very small period," the chancellor declares to much hooting from his side (and a few Tories, I think).
4.15pm
We've now settled into a rhythm of Labour MPs, often from the north-east, attacking the Lib Dems for not caring about the 6,000 staff whose jobs are on the line, and Conservative members insisting that the government needs to come rather cleaner about exactly how exposed the humble taxpayer is.
Peter Lilley wants to know the terms, conditions and repayment process of the Bank of England loan. He doesn't get them. Brian Binley asks how much of Northern Rock's assets are already pledged to cover the support it has received - but Darling just points him back to his statement, in which he pledged that the funding was secure and would be recovered once the bank's future is secure.
What about the future of the Northern Rock Foundation, the charitable foundation that receives 5% of the bank's pre-tax profits?
Darling hails its achievements, saying the foundation's "very very important work" is one reason Northern Rock is so popular in the north-east (although that esteem may have taken rather a hammering recently).
4.25pm
And after a few more exchanges, the debate is over. The process is clearly going to drag on until next year, although with Northern Rock's shares down 21% today at 104p, one wonders how much of a bank there will be left to sell by 2008.
Darling on Northern Rock - Live
November 19, 2007 3:25 PM
In what promises to be a boisterous event, Alistair Darling will update MPs on the future of Northern Rock at 3.30pm.
The chancellor will outline the range of options on the table, in a ministerial statement.
We already know that Northern Rock has received around 10 approaches which have one thing in common - they all put a much lower price on the bank than last Friday's market value.
This revelation sent Northern Rock's shares crashing again this morning, and only added to fears that taxpayers will be out of pocket by the time this fiasco is resolved.
We'll bring you live coverage of the statement and the debate that follows.
Scroll down for latest updates
3.25pm
We're just waiting for the secretary of state for work and pensions to wrap up questions, and then we'll be off.
3.30pm
Right, Alistair Darling is on his feet and this much-anticipated ministerial statement on Northern Rock is underway. He starts by outlining the respective responsibilities of the government versus the Northern Rock board - pointing out that "as a major creditor, the government has a very significant interest in the future of Northern Rock".
He also reassures nervous savers that the current guarantee on their money won't be revoked without suitable warning.
He also reminds MPs why Northern Rock hit such trouble - its almost total reliance on the wholesale money markets, and warns that we face "continued uncertainty in financial markets because of the problems in the US mortgage market".
3.40pm
Now the important issue - what happens next.
The chancellor runs through the information released by the Treasury at 7.30am, explaining its approach to sale. In brief, it will use this time to find the best solution for the country and the company.
Now shadow chancellor George Osborne responds. He already upped the pressure this morning in a radio interview, claiming Darling's job was on the line over the crisis, and lays into him again now.
He accuses the government of allowing the "chaos and confusion" around Northern Rock to get worse every week.
Osborne also challenges Darling for not revealing exactly how much emergency funding Northern Rock has now borrowed from the Bank of England, suggesting that he is misleading the public by not disclosing this detail.
He also demands that the letters sent by Bank governor Mervyn King explaining the full situation are published - which the government has so far declined to do.
3.45pm
Getting into his stride, Osborne refers to reports that Northern Rock's free assets have shrunk to around £40bn, and that the government's liability is actually nearly as great.
He also cites BBC reports that the government is also quietly supporting Northern Rock with a chunk of subordinated debt. He alleges that Darling may be "deliberately withholding information from parliament and the public".
Darling does not appear to be enjoying this attack, and looks a bit uncomfortable on the government benches.
Osborne signs off by claiming this is "a tale of incompetence and weak leadership ... reeling from one disaster to another".
3.50pm
Darling scrambles for the moral high ground, expressing his disappointment that Osborne was not able to put forward any constructive proposals (although isn't that what all those bright chaps in the Treasury are for?)
He also suggests that Robert Peston has been overegging his latest Northern Rock scoop, but admits that the subordinated debt does indeed exist.
On the issue of the letters he received during the crisis, Darling pins the blame on the FSA whose head, he says, "most certainly does not want them published". The FSA has been roundly criticised for not catching the problems at Northern Rock before they became a full-scale crisis, incidentally.
4pm
Now other MPs are weighing in, starting with Doug Henderson who represents Newcastle upon Tyne North.
He reassures Darling that the people of Newcastle, where there are something like 4,500 jobs on the line, are grateful for his actions and support him.
There's less charity from Vincent Cable, acting leader of the Liberal Democrats, who claims that the present chancellor bears an "increasing resemblence" to Norman Lamont. I could be wrong, but I think Cable is referring to the ERM debacle rather than the passing similarity of their eye-catching hair and eyebrows.
He tries to excoriate the government for not pushing out the Northern Rock board weeks ago (chief executive Adam Applegarth and several non-execs submitted their resignations late on Friday).
"This is a management team that was discredited, that led the bank into this crisis, and a chief executive who showed such contempt for his company that he cashed in his shares to buy a country house and a Ferrari for his wife," Cable claims.
Tossing in a nostalgic reference to "City spivs" profiting from the crisis, Cable calls for the bank to be nationalised for a very small period while its future is worked out.
4.05pm
That last remark has Darling bouncing off his seat, to accuse the Lib Dem man of the sin of flip-flopping.
"On Saturday he demanded full-scale nationalisation. By yesterday, he'd moved to reluctant nationalisation. Now, it's nationalisation for a very small period," the chancellor declares to much hooting from his side (and a few Tories, I think).
4.15pm
We've now settled into a rhythm of Labour MPs, often from the north-east, attacking the Lib Dems for not caring about the 6,000 staff whose jobs are on the line, and Conservative members insisting that the government needs to come rather cleaner about exactly how exposed the humble taxpayer is.
Peter Lilley wants to know the terms, conditions and repayment process of the Bank of England loan. He doesn't get them. Brian Binley asks how much of Northern Rock's assets are already pledged to cover the support it has received - but Darling just points him back to his statement, in which he pledged that the funding was secure and would be recovered once the bank's future is secure.
What about the future of the Northern Rock Foundation, the charitable foundation that receives 5% of the bank's pre-tax profits?
Darling hails its achievements, saying the foundation's "very very important work" is one reason Northern Rock is so popular in the north-east (although that esteem may have taken rather a hammering recently).
4.25pm
And after a few more exchanges, the debate is over. The process is clearly going to drag on until next year, although with Northern Rock's shares down 21% today at 104p, one wonders how much of a bank there will be left to sell by 2008.
K
Kathy
Guest
A bit more from the BBC website. Not sure that these reports go hand in hand with some of the comments on this thread but hey, I know I don't have a clue about what is really going on but it makes interesting reading for me anyway.
Darling in Commons row over Rock
More bids for Northern Rock are expected soon
Chancellor Alistair Darling has clashed with the shadow chancellor over his role in the Northern Rock crisis, as bids to buy the bank came in.
Mr Darling told MPs the government had a clear duty to protect the public interest, "and we will do that".
But his shadow George Osborne said the chancellor had not explained how taxpayers would get their money back.
Northern Rock says bids received so far from potential investors are "materially below" its share price.
Two suitors, Virgin Group and Olivant Advisers, have both submitted their proposals to rescue the firm.
But news of their value sent Northern Rock shares plunging and they ended the day 21.4% lower by close of trade.
More bids expected
Northern Rock's shareholders have had a huge dose of bad news
The Newcastle-based company, which employs about 6,000 staff, said that it expected to receive further expressions of interest over the "next few days".
As well as Virgin and Olivant - an investment firm headed by former Abbey boss Luqman Arnold - private equity firms JC Flowers and Cerberus have eyed the Rock.
The bank, whose chief executive Adam Applegarth resigned on Friday, said that while it would still analyse and discuss proposals it had received, "the value to shareholders from any of the proposals remains highly uncertain".
'Money will be repaid'
Mr Darling was defending his role in the crisis that has engulfed the mortgage lender since September, when the government was forced to put up huge loans to save the bank after thousands of customers queued up to withdraw their funds.
But shadow chancellor George Osborne said the fallout from the crisis "got worse each week".
Speaking in the House of Commons, Mr Darling insisted that the government-backed loans given to the bank - currently worth about £24bn - must be repaid - and said that the lending was all guaranteed against "quality assets" including mortgages.
Talking about the potential sale of the Rock, he said that the government would "only support a proposal that protects the interest of the depositors and the tax-payers".
"It is in the interests of everyone that the situation with regard to Northern Rock is resolved as soon as possible," he added.
"It would be quite wrong to dismiss any option now without proper consideration as some suggest.
"I continue to believe it is right to use this time to explore the best outcome for the company and the public interest."
Savings are "fully guaranteed"
He added that deposits of savers would continue to be fully guaranteed - and that if the situation was set to change - plenty of notice would be given.
Earlier the government said that there was no certainty that any bidder for the Rock would have access to the emergency loans after February.
But the Treasury said that it was "willing to discuss" any proposals that envisaged a continuing role for the Bank of England, the Treasury and the Financial Services Authority.
The Treasury has also warned that the support it has provided to the Rock could represent state aid under EU rules and therefore may be illegal if continued for an indefinite period.
In its statement, the Treasury says that costs and risks associated with Northern Rock should be "borne to the greatest extent possible" by the current and future providers of capital, an indication that it is worried that taxpayers could lose money as a result of the woes at the bank.
The Liberal Democrats have renewed their call for the bank to be nationalised, stabilised and then sold off, because they say the directors and shareholders have no interest in safeguarding taxpayers' money.
The Tories are also demanding assurances that taxpayers' money is being safeguarded.
Darling in Commons row over Rock
More bids for Northern Rock are expected soon
Chancellor Alistair Darling has clashed with the shadow chancellor over his role in the Northern Rock crisis, as bids to buy the bank came in.
Mr Darling told MPs the government had a clear duty to protect the public interest, "and we will do that".
But his shadow George Osborne said the chancellor had not explained how taxpayers would get their money back.
Northern Rock says bids received so far from potential investors are "materially below" its share price.
Two suitors, Virgin Group and Olivant Advisers, have both submitted their proposals to rescue the firm.
But news of their value sent Northern Rock shares plunging and they ended the day 21.4% lower by close of trade.
More bids expected
Northern Rock's shareholders have had a huge dose of bad news
The Newcastle-based company, which employs about 6,000 staff, said that it expected to receive further expressions of interest over the "next few days".
As well as Virgin and Olivant - an investment firm headed by former Abbey boss Luqman Arnold - private equity firms JC Flowers and Cerberus have eyed the Rock.
The bank, whose chief executive Adam Applegarth resigned on Friday, said that while it would still analyse and discuss proposals it had received, "the value to shareholders from any of the proposals remains highly uncertain".
'Money will be repaid'
Mr Darling was defending his role in the crisis that has engulfed the mortgage lender since September, when the government was forced to put up huge loans to save the bank after thousands of customers queued up to withdraw their funds.
But shadow chancellor George Osborne said the fallout from the crisis "got worse each week".
Speaking in the House of Commons, Mr Darling insisted that the government-backed loans given to the bank - currently worth about £24bn - must be repaid - and said that the lending was all guaranteed against "quality assets" including mortgages.
Talking about the potential sale of the Rock, he said that the government would "only support a proposal that protects the interest of the depositors and the tax-payers".
"It is in the interests of everyone that the situation with regard to Northern Rock is resolved as soon as possible," he added.
"It would be quite wrong to dismiss any option now without proper consideration as some suggest.
"I continue to believe it is right to use this time to explore the best outcome for the company and the public interest."
Savings are "fully guaranteed"
He added that deposits of savers would continue to be fully guaranteed - and that if the situation was set to change - plenty of notice would be given.
Earlier the government said that there was no certainty that any bidder for the Rock would have access to the emergency loans after February.
But the Treasury said that it was "willing to discuss" any proposals that envisaged a continuing role for the Bank of England, the Treasury and the Financial Services Authority.
The Treasury has also warned that the support it has provided to the Rock could represent state aid under EU rules and therefore may be illegal if continued for an indefinite period.
In its statement, the Treasury says that costs and risks associated with Northern Rock should be "borne to the greatest extent possible" by the current and future providers of capital, an indication that it is worried that taxpayers could lose money as a result of the woes at the bank.
The Liberal Democrats have renewed their call for the bank to be nationalised, stabilised and then sold off, because they say the directors and shareholders have no interest in safeguarding taxpayers' money.
The Tories are also demanding assurances that taxpayers' money is being safeguarded.
Tout Seul
Senior Jockey
- Joined
- May 2, 2003
- Messages
- 2,628
And so it goes on and on. The blind leading the blind and people highlighting parts of their quotes without understanding.
Kathy you said you didn't understand my earlier analogy of a house price. If nobody made an offer on a house you were selling for a period of a month. Would you assume that the house had no value? I await your reply but I guess you would say no. If nobody in your area has sold a house in the same period how could you prove that the house had value. Any figure you come to is a matter of conjecture, asked to prove it other than at a ridiculously low level you cannot.
Banks with exposure to the US sub prime mortgage market ( not NR as I understand) cannot put an exact value on the value of their exposure because there is no proper market against which to value it. These banks, particularly the large global banks, hold the sub -prime as trading investments and generally value against similar mrket levels. There is no market at present. Theoretically like the house that hasn't sold there is no value in the asset. Practically of course there is but noone can accurately prove what that figure is. So the global banks are coming out with guesstimates writing off varying %ages all of which could be wrong. Some are delaying because they don't want to be accused of either misleading or indeed frightening the markets.
In this scenario it is understandable that banks want to reduce their exposure to the wholesale mortgage market no matter whether it be the US market or any other. NR is one of a small number of specialist mortgage lenders in the UK market that has been borrowing largely short term to fund its long term assets. Thus because other banks have cocked up lending to US sub prime it finds that it must repay loans that are normally automatically extended. It was not in a position to do, nor would be almost any bank that was required to repay all its borrowings in short order.
HMG supported NR, because this would prevent a run spreading to other banks, a domino effect in the UK. NatWest had similar assistance offered in the past. at the same time people were put into NR to get an independent detailed assesment of its problems.At that time the existing management were needed because they alone had a detailed knowledge of the banks book. As the run, fuelled by scaremongering, continued the support had to be increased particularly as the full nature of other banks exposure to US mortgages began to become apparent.
That's the guts of the story. Now lets look at today's debate and those bits you highlighted:
a) The bids are announced to be below current share price levels. Surprise, sirprise. Note they are not nil which they would have to be before any dimimition of the the loan book.
b) The bids were based on info provided by those put in to assess the value. Thus there would be a detailed description and valuation of the book. If it was as bad as some are saying then bids would be at a discount. NB Virgin offered to put in £1.3 billion for 2/3 of the ownership.
c) "He also reassures nervous savers that the current guarantee on their money won't be revoked without suitable warning." Acknowledges that AD had already assured savers that HMG will guarantee their money up till a certain time. ie We will stop on XXX date and if you get your money out before then it is guaranteed. Simple stuff really!
d)"Osborne also challenges Darling for not revealing exactly how much emergency funding Northern Rock has now borrowed from the Bank of England, suggesting that he is misleading the public by not disclosing this detail.
He also demands that the letters sent by Bank governor Mervyn King explaining the full situation are published - which the government has so far declined to do."Firstly it is not normal to give commercially sensitive info when rescuing, remember Rover. Secondly GO is fishing for the next point.
e) "He also cites BBC reports that the government is also quietly supporting Northern Rock with a chunk of subordinated debt." The BBC and several of the papers have totally misread this if my understanding is correct and I'm fairly certain it is. The BOE is providing funds to NR at a penal rate. HMG is deferring the penalty margin( ie its profit) whilst the market interest rate is paid current. A reasonable thing to do when you are conducting an orderly rescue.It has placed the profit element amongst the unsecured creditors- but in front of the shareholders- in order that it cannot be accused of making a profit out ofthe exercise to the detriment of other unsecured lenders.
f) "He tries to excoriate the government for not pushing out the Northern Rock board weeks ago (chief executive Adam Applegarth and several non-execs submitted their resignations late on Friday).
"This is a management team that was discredited, that led the bank into this crisis, and a chief executive who showed such contempt for his company that he cashed in his shares to buy a country house and a Ferrari for his wife," Cable claims."
As I said earlier those resignations would have been agreed at an early stage with the people staying around to answer questions. Sack them early and their legal advisers would have them say nothing.
g) "Peter Lilley wants to know the terms, conditions and repayment process of the Bank of England loan. He doesn't get them. Brian Binley asks how much of Northern Rock's assets are already pledged to cover the support it has received - but Darling just points him back to his statement, in which he pledged that the funding was secure and would be recovered once the bank's future is secure."
See the point on commercially sentive info above. Also since no-one else is lending NR new money then HMG would take all not pledged to existing lenders.
H) "What about the future of the Northern Rock Foundation, the charitable foundation that receives 5% of the bank's pre-tax profits?>.This would depend on the terms of the Articles of NR but all creditors would be paid out before it and possibly it gets nothing if the shareholders get nothing on liquidation.
Kathy you said you didn't understand my earlier analogy of a house price. If nobody made an offer on a house you were selling for a period of a month. Would you assume that the house had no value? I await your reply but I guess you would say no. If nobody in your area has sold a house in the same period how could you prove that the house had value. Any figure you come to is a matter of conjecture, asked to prove it other than at a ridiculously low level you cannot.
Banks with exposure to the US sub prime mortgage market ( not NR as I understand) cannot put an exact value on the value of their exposure because there is no proper market against which to value it. These banks, particularly the large global banks, hold the sub -prime as trading investments and generally value against similar mrket levels. There is no market at present. Theoretically like the house that hasn't sold there is no value in the asset. Practically of course there is but noone can accurately prove what that figure is. So the global banks are coming out with guesstimates writing off varying %ages all of which could be wrong. Some are delaying because they don't want to be accused of either misleading or indeed frightening the markets.
In this scenario it is understandable that banks want to reduce their exposure to the wholesale mortgage market no matter whether it be the US market or any other. NR is one of a small number of specialist mortgage lenders in the UK market that has been borrowing largely short term to fund its long term assets. Thus because other banks have cocked up lending to US sub prime it finds that it must repay loans that are normally automatically extended. It was not in a position to do, nor would be almost any bank that was required to repay all its borrowings in short order.
HMG supported NR, because this would prevent a run spreading to other banks, a domino effect in the UK. NatWest had similar assistance offered in the past. at the same time people were put into NR to get an independent detailed assesment of its problems.At that time the existing management were needed because they alone had a detailed knowledge of the banks book. As the run, fuelled by scaremongering, continued the support had to be increased particularly as the full nature of other banks exposure to US mortgages began to become apparent.
That's the guts of the story. Now lets look at today's debate and those bits you highlighted:
a) The bids are announced to be below current share price levels. Surprise, sirprise. Note they are not nil which they would have to be before any dimimition of the the loan book.
b) The bids were based on info provided by those put in to assess the value. Thus there would be a detailed description and valuation of the book. If it was as bad as some are saying then bids would be at a discount. NB Virgin offered to put in £1.3 billion for 2/3 of the ownership.
c) "He also reassures nervous savers that the current guarantee on their money won't be revoked without suitable warning." Acknowledges that AD had already assured savers that HMG will guarantee their money up till a certain time. ie We will stop on XXX date and if you get your money out before then it is guaranteed. Simple stuff really!
d)"Osborne also challenges Darling for not revealing exactly how much emergency funding Northern Rock has now borrowed from the Bank of England, suggesting that he is misleading the public by not disclosing this detail.
He also demands that the letters sent by Bank governor Mervyn King explaining the full situation are published - which the government has so far declined to do."Firstly it is not normal to give commercially sensitive info when rescuing, remember Rover. Secondly GO is fishing for the next point.
e) "He also cites BBC reports that the government is also quietly supporting Northern Rock with a chunk of subordinated debt." The BBC and several of the papers have totally misread this if my understanding is correct and I'm fairly certain it is. The BOE is providing funds to NR at a penal rate. HMG is deferring the penalty margin( ie its profit) whilst the market interest rate is paid current. A reasonable thing to do when you are conducting an orderly rescue.It has placed the profit element amongst the unsecured creditors- but in front of the shareholders- in order that it cannot be accused of making a profit out ofthe exercise to the detriment of other unsecured lenders.
f) "He tries to excoriate the government for not pushing out the Northern Rock board weeks ago (chief executive Adam Applegarth and several non-execs submitted their resignations late on Friday).
"This is a management team that was discredited, that led the bank into this crisis, and a chief executive who showed such contempt for his company that he cashed in his shares to buy a country house and a Ferrari for his wife," Cable claims."
As I said earlier those resignations would have been agreed at an early stage with the people staying around to answer questions. Sack them early and their legal advisers would have them say nothing.
g) "Peter Lilley wants to know the terms, conditions and repayment process of the Bank of England loan. He doesn't get them. Brian Binley asks how much of Northern Rock's assets are already pledged to cover the support it has received - but Darling just points him back to his statement, in which he pledged that the funding was secure and would be recovered once the bank's future is secure."
See the point on commercially sentive info above. Also since no-one else is lending NR new money then HMG would take all not pledged to existing lenders.
H) "What about the future of the Northern Rock Foundation, the charitable foundation that receives 5% of the bank's pre-tax profits?>.This would depend on the terms of the Articles of NR but all creditors would be paid out before it and possibly it gets nothing if the shareholders get nothing on liquidation.
As I see it this situation can only lead to disaster for the taxpayer. HMG waded in, for short-term gain whether political or not is immaterial [I think it was political] without considering the longer term consequences of baling out this disaster calling itself a bank. I don't see that at the time there was the run on NR that it would have spread to other banks - tho another run would and with tgood reason, now that people are more clued up on the reasons for NR's problems and how exposed other banks migth be to the same. HKSB is the one I've been reading abo
ut that is also exposed to sub-prime markets btw. See Times online article:
http://business.timesonline.co.uk/tol/busi...icle2237727.ece
The Govt has now got itself into a situation where it is obliged to shore up NR for the forseeable future, with no control whatever over what the shareholders might decide to do. If HMG want to take control they have to declare the bank insolvent [which to all intents and purposes it is]. How is NR ever going to repay that kind of capital + interest - what are its assets? It has mortgages sure, but for how long and to what value? - all those people who can afford to do so {ie own enough equity in their property} are going to re-mortgage when their fixed term runs out in a year or two. This will leave NR with assets of ever-diminishing value. What other assets do they own? Are savings holding up? - I doubt it.
The Govt's noises moreover about the EU possibly declaring the loans illegal should be heeded - I mentioned they'd started already at the outset of the crisis. If the EU forces the withdrawal of the loans under 'unfair competition' laws - and I think it will - then it will result in insolvency and a massive loss to the taxpayer as well as to the shareholders. Panic-mongering it may be, but if it were my savings I'd get them out pronto; and AD seems to be encouraging them to do exactly that while they still can [ie, while the guarantee is still in place].
Just because some of us don't understand the finer workings of the international banking system, doesn't mean we can't tell when we are being sold a pig in a poke. I've seen no reason to change my initial assessment that HMG has made a big mistake in baling out our "Friends in the North". And I doubt it would have happened either, if the bank had been based in Camberley or Cheltenham.
TS, as for your analogy of a "house for sale" - we all know that some houses don't receive an offer, for the simple reason that they are worthless [or at least 'worth less' than the optimistic owners demand]. They might be falling down, for example, however hidden this is to the naked eye.. Or might be in danger of compulsory purchase
By shoring up the bank to save 'savers' the Govt is also shoreing up the shareholders to some extent. Shares would be totally worthless by now without the guarantees buying time... but if the bank is sold, the money goes to the shareholders. Is this what taxpayers money should be used for? I don't think so. Nor do a lot of commentators on the financial pages of reputable newspapers.
ut that is also exposed to sub-prime markets btw. See Times online article:
http://business.timesonline.co.uk/tol/busi...icle2237727.ece
The Govt has now got itself into a situation where it is obliged to shore up NR for the forseeable future, with no control whatever over what the shareholders might decide to do. If HMG want to take control they have to declare the bank insolvent [which to all intents and purposes it is]. How is NR ever going to repay that kind of capital + interest - what are its assets? It has mortgages sure, but for how long and to what value? - all those people who can afford to do so {ie own enough equity in their property} are going to re-mortgage when their fixed term runs out in a year or two. This will leave NR with assets of ever-diminishing value. What other assets do they own? Are savings holding up? - I doubt it.
The Govt's noises moreover about the EU possibly declaring the loans illegal should be heeded - I mentioned they'd started already at the outset of the crisis. If the EU forces the withdrawal of the loans under 'unfair competition' laws - and I think it will - then it will result in insolvency and a massive loss to the taxpayer as well as to the shareholders. Panic-mongering it may be, but if it were my savings I'd get them out pronto; and AD seems to be encouraging them to do exactly that while they still can [ie, while the guarantee is still in place].
Just because some of us don't understand the finer workings of the international banking system, doesn't mean we can't tell when we are being sold a pig in a poke. I've seen no reason to change my initial assessment that HMG has made a big mistake in baling out our "Friends in the North". And I doubt it would have happened either, if the bank had been based in Camberley or Cheltenham.
TS, as for your analogy of a "house for sale" - we all know that some houses don't receive an offer, for the simple reason that they are worthless [or at least 'worth less' than the optimistic owners demand]. They might be falling down, for example, however hidden this is to the naked eye.. Or might be in danger of compulsory purchase
By shoring up the bank to save 'savers' the Govt is also shoreing up the shareholders to some extent. Shares would be totally worthless by now without the guarantees buying time... but if the bank is sold, the money goes to the shareholders. Is this what taxpayers money should be used for? I don't think so. Nor do a lot of commentators on the financial pages of reputable newspapers.
archie
Senior Jockey
Priceless.
K
Kathy
Guest
I am sure TS will confirm there is still absolutely nothing to worry about. This type of thing probably goes on all the time and the HMG is probably wringing their hands knowing that they are making a healthy profit from their loan to NR . shrug:: Still more to come about this story no doubt.
Revealed: massive hole in Northern Rock's assets
Investigation shows £53bn of mortgages owned by off shore company
Ian Griffiths The Guardian Friday November 23 2007
Fresh doubts emerged last night about Northern Rock's ability to repay the £23bn of taxpayers' money it has been lent by the Bank of England.
A Guardian examination of Northern Rock's books has found that £53bn of mortgages - over 70% of its mortgage portfolio - is not owned by the beleaguered bank, but by a separate offshore company.
The same investigation reveals just how vulnerable the bank is to a cooling property market and demonstrates the scale of Northern Rock's exposure to mortgages where customers have borrowed heavily against their homes.
The mortgages are now owned by a Jersey-based trust company and have been used to underpin a series of bond issues to raise cash for Northern Rock. It means the pool of assets available to provide collateral for Northern Rock's creditors, including the Bank of England, is dramatically reduced, calling into question government claims that taxpayers' money is safe.
This week the chancellor, Alistair Darling, told parliament taxpayers' money was safeguarded. "Bank of England lending is secured against assets held by Northern Rock. These assets include high quality mortgages with a significant protection margin built in and high quality securities with the highest quality of credit rating," he said.
The first tranche of the Bank's emergency lending to Northern Rock in September has been secured against specific assets. But the second tranche is secured only by a more general floating charge, which would mean the Bank would be vying with other creditors for repayment if Northern Rock failed. It is not clear how much money was loaned in each tranche, but the emergency loans are thought to have been for about £11bn each.
A number of bidders have expressed an interest in buying Northern Rock but the offers have been below the stock market price of the shares suggesting there are concerns about the bank's underlying value. The Guardian's analysis of £58bn or 75% of Northern Rock's residential mortgage portfolio reveals the extent of exposure and suggests the company is suffering from rising arrears and repossessions.
Among the findings are:
· Mortgage loans of over 90% of the purchase price of a house have soared to £16bn, from £2.7bn, in the space of three years.
· Loans have exceeded the value of the property on nearly 2,500 mortgages, with a value of £263m. Three years ago, the figure was just £13m on 158 properties.
· 10,000 Northern Rock customers are a month or more in arrears on their mortgages, on loans worth nearly £1.2bn. At the end of 2003, there were only 2,500 in the same difficulties, with mortgages worth £168.8m.
· In 2003 Northern Rock repossessed 80 properties. Last year more than 1,000 properties were repossessed. By the end of September this year 912 properties had already been repossessed.
A rising loan to value ratio leaves Northern Rock exposed to any slump in house prices. Any property market crash would also have an impact on the company's arrears position.
The Guardian analysis has also discovered that Northern Rock has admitted being in breach of the conditions of the securities it has sold through its Jersey-based Granite Master Issuer, the company which packages and sells mortgage backed securities, but it has decided to ignore the breach. The breach occurred in September when Fitch, one of the main ratings agencies, downgraded Northern Rock's long-term credit ratings.
Richard Murphy, a forensic accountant and director of Tax Research, who has followed the Northern Rock affair and scrutinised its relationship with Granite, is concerned that the division between Northern Rock and Granite has been blurred, creating uncertainty over its mortgage portfolio.
"This should be a concern for the Bank and the Treasury particularly if the emergency loans have actually been used to finance the activities of Granite rather than Northern Rock. It would be harder for the government to secure preferential treatment over other creditors if it is shown that the money was actually for Granite's benefit," he said
Revealed: massive hole in Northern Rock's assets
Investigation shows £53bn of mortgages owned by off shore company
Ian Griffiths The Guardian Friday November 23 2007
Fresh doubts emerged last night about Northern Rock's ability to repay the £23bn of taxpayers' money it has been lent by the Bank of England.
A Guardian examination of Northern Rock's books has found that £53bn of mortgages - over 70% of its mortgage portfolio - is not owned by the beleaguered bank, but by a separate offshore company.
The same investigation reveals just how vulnerable the bank is to a cooling property market and demonstrates the scale of Northern Rock's exposure to mortgages where customers have borrowed heavily against their homes.
The mortgages are now owned by a Jersey-based trust company and have been used to underpin a series of bond issues to raise cash for Northern Rock. It means the pool of assets available to provide collateral for Northern Rock's creditors, including the Bank of England, is dramatically reduced, calling into question government claims that taxpayers' money is safe.
This week the chancellor, Alistair Darling, told parliament taxpayers' money was safeguarded. "Bank of England lending is secured against assets held by Northern Rock. These assets include high quality mortgages with a significant protection margin built in and high quality securities with the highest quality of credit rating," he said.
The first tranche of the Bank's emergency lending to Northern Rock in September has been secured against specific assets. But the second tranche is secured only by a more general floating charge, which would mean the Bank would be vying with other creditors for repayment if Northern Rock failed. It is not clear how much money was loaned in each tranche, but the emergency loans are thought to have been for about £11bn each.
A number of bidders have expressed an interest in buying Northern Rock but the offers have been below the stock market price of the shares suggesting there are concerns about the bank's underlying value. The Guardian's analysis of £58bn or 75% of Northern Rock's residential mortgage portfolio reveals the extent of exposure and suggests the company is suffering from rising arrears and repossessions.
Among the findings are:
· Mortgage loans of over 90% of the purchase price of a house have soared to £16bn, from £2.7bn, in the space of three years.
· Loans have exceeded the value of the property on nearly 2,500 mortgages, with a value of £263m. Three years ago, the figure was just £13m on 158 properties.
· 10,000 Northern Rock customers are a month or more in arrears on their mortgages, on loans worth nearly £1.2bn. At the end of 2003, there were only 2,500 in the same difficulties, with mortgages worth £168.8m.
· In 2003 Northern Rock repossessed 80 properties. Last year more than 1,000 properties were repossessed. By the end of September this year 912 properties had already been repossessed.
A rising loan to value ratio leaves Northern Rock exposed to any slump in house prices. Any property market crash would also have an impact on the company's arrears position.
The Guardian analysis has also discovered that Northern Rock has admitted being in breach of the conditions of the securities it has sold through its Jersey-based Granite Master Issuer, the company which packages and sells mortgage backed securities, but it has decided to ignore the breach. The breach occurred in September when Fitch, one of the main ratings agencies, downgraded Northern Rock's long-term credit ratings.
Richard Murphy, a forensic accountant and director of Tax Research, who has followed the Northern Rock affair and scrutinised its relationship with Granite, is concerned that the division between Northern Rock and Granite has been blurred, creating uncertainty over its mortgage portfolio.
"This should be a concern for the Bank and the Treasury particularly if the emergency loans have actually been used to finance the activities of Granite rather than Northern Rock. It would be harder for the government to secure preferential treatment over other creditors if it is shown that the money was actually for Granite's benefit," he said
K
Kathy
Guest
I know I "apparently" know absolutely nothing about the workings of NR and why HMG wouldn't gamble with the taxpayers money but nice to see in The Guardian article their journalist may have discovered exactly what belongs to the NR and why the offers made were probably worth considering. I could put money on the fact that I am told that I know even less now
Tout Seul
Senior Jockey
- Joined
- May 2, 2003
- Messages
- 2,628
Normal it is for this type of company.
I month > in arrears = 2.0 %.
Superb investigation by Guardian reporter requiring all of 5 second search on Bloomberg.
Why not compare and contrast with other bond issuers?
Frankly I can't be bothered responding to such pathetic journalism.
I month > in arrears = 2.0 %.
Superb investigation by Guardian reporter requiring all of 5 second search on Bloomberg.
Why not compare and contrast with other bond issuers?
Frankly I can't be bothered responding to such pathetic journalism.
K
Kathy
Guest
Probably best you don't, TS. I am sure the story surrounding HMG and Northern Rock will become blatantly clear in the fullness of time.