Rock: Brown blinks
The Chancellor will imply on Monday that were Northern Rock to be nationalised, shareholders would receive nothing or next to nothing.
What Alistair Darling will say, in a Stock Exchange announcement and in a statement to the House of Commons, is that a valuation of the Rock’s shares, were to it be nationalised, would be based on what the business would be worth in the absence of the Government’s current financial support to the troubled bank.
In the absence of that £55bn of taxpayer loans and guarantees to Northern Rock, the bank would be in administration under insolvency procedures – and the Rock’s shareholders would have to wait in line, probably for years, to receive anything for their shares, pending the total dismantling of the business.
Mr Darling’s motives in making the threat to shareholders are transparent.
He wants to scare them into accepting any deal the company and Treasury were to reach with the private-sector groups still vying for control of the Rock – even if that deal gave little to shareholders.
Many in the City will see the Chancellor’s statement as giving a particular boost to the prospects of the Virgin consortium, since its takeover proposal was regarded as particularly hostile to the interests of the Rock’s shareholders.
This determination to scare shareholders into submission is also why both the Chancellor and the Prime Minister said last week that nationalisation remain a very live option for the bank.
And it’s why they have made detailed contingency plans for a nationalisation, which included appointing Ron Sandler – the former insurance executive – to chair a nationalised Rock, and preparing legislation as their preferred route to nationalisation.
The Chancellor and Prime Minister felt they won a victory at the bank’s extraordinary meeting on Tuesday, when two big hedge funds failed in their attempt to win shareholder support for their attempt to severely limit the ability of the bank’s board to sell the business without their approval.
There’s only one problem for Gordon Brown and Alistair Darling.
Their other actions this weekend tell a very different story.
They have signalled that they are deeply scared of the political ramifications of nationalising Northern Rock, and are prepared to accept almost any price to avoid nationalisation.
That’s apparent in the way that they have massively sweetened the terms on which they are prepared to support any private-sector group wishing to take control of the Rock.
By accepting the proposal from Goldman Sachs, the investment bank, to convert a taxpayer loan – which is currently around £24bn – into bonds for sale to international investors, they have decided to provide public-sector support on a greater scale and for much longer than they had initially said they would do.
Those bonds would be guaranteed by the Government. And the Bank of England will endeavour to sell as many of them to investors as it can, as quickly as market conditions permit.
But unless there is some miraculous improvement in conditions in money markets, it means that taxpayers will continue to prop up the Rock to the tune of tens of billions of pounds for years – because the loans will be guaranteed by the Government until such time that private-sector insurers are prepared to take over that guarantee at an acceptable price (no chance of that right now).
And because these bonds have a five-year term, the Government will be promising to provide taxpayer support to the Rock for at least five years.
That’s quite a change from what the Treasury was saying before Christmas, when it was demanding that any private-sector rescuer should repay between £10bn or £15bn of those taxpayer loans straight away.
The way to see all this is as a game of chicken between the Prime Minister, Gordon Brown, and the two hedge-fund shareholders, SRM and RAB.
The hedge funds want to make as much money as they can from their 18 per cent holding in the bank.
Mr Brown wants a private-sector deal that tilts the rewards away from shareholders and towards the taxpayer.
In this game of chicken, by signalling how reluctant he is to push the nationalisation button, it was the Prime Minister who blinked this weekend – and the hedge funds may well be feeling pretty chipper.
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I assume the securitised Government backed loans will find their way onto another bank's balance sheet and used to generate more loans to the market at between 10 and 25 times the £24bn.
Talk about missing the point about imprudent lending.
I understand the reasons for trying to save NR, but I cannot support the use ofbillions of pounds of taxpayers money paying off shareholders, many of whom will be overseas investors.
Gordon Brown can't really win here, but the preferred option would be to nationalise the company. I bought shares in Railtrack and few years ago, and sold them when they were high. I took the risk and won, others did not. So why should NR shareholders receive preferential treatment?
Hedge funds do not care what the consequences of their actions are, as long as they profit.
Gordon Brown is not a financial specialist, and to take on hedge funds is a fight he cannot win.
I do note some division in the Rocks mortgage book value and it has been put forward as good at 59% loan to value.
I would point out we know what the loans are but the value is a different matter. Values are certainly falling. How far they fall will be crucial in this process.
Nobody knows how far they will fall.
I think it may be substantial.
I am retired and I already have the allotment. The house is paid for and it is only a value to my children.
I think for the Government to buy into this with taxpayers money is madness.
regards
regards
What would the shareholders receive if the company had been liquidated? Any company outside banking would have now been in that position and the lead bankers would be seeking full repayment whilst others received nothing. If shareholders at Northern Rock receive anything in this present scenario then it will be much more than they would receive had it been a non-banking company in the same position. - Eddy Weatherill, chief executive - Independent Banking Advisory Service (IBAS)
The mess at Northern Rock will continue for months and perhaps years and to think it all started because of Robert Preston apparently had a scoop and the ³ÉÈË¿ìÊÖ were stupid enough to broadcast it
They should have safeguarded savers' deposits and let the thing go bankrupt. If you're a shareholder and you don't check what management is doing that's a risk you take. If you don't have proper financial controls in place that's a risk the government takes. Now it's the taxpayer that will end up paying.
Nice to see Gordon Brown has bottled it!
In the long run this is effectively a cheap loan to a few chancers that have bought shares at a knockdown price like RAB & SRM and whoever eventually buys up NR.
Had Margaret Thatcher have done this the old labour party would have been up in arms over crony loans at taxpayers expense to robber barons.
Keir Hardie & Nye Bevin must be spinning in their graves.
Excellent. It is a game of chicken, as you say. Or, a game of chess as I recently argued:
'The signal deliberately leaked is necessary to convey the seriousness. It can be backed up in chess terms (and in military and political terms) if it can be shown that recent moves by Darling have been played to strengthen the impact of the threat if activated.
Once again, the intrepid financial journalist Robert Peston continues his high profile scoops. So Mr Peston gets his story for the ³ÉÈË¿ìÊÖ. Mr Darling gets his signal accurately and prominently reported'.
[https://leaderswedeserve.wordpress.com/2008/01/14/alistair-darling-plays-chess-at-northern-rock/]
If the Nulab state forces the shareholders to sell to Nulab friend Branson then that IS nationalisation followed by privatisation to Nulab friend Branson. And afterwards the taxpaying serfs are to be raped,and nulab friend Branson will move up the rich list. Such are the delights of Nulab public private state monopoly capitalism!
Robert,
Why has NR not been put into administration? A sale of it's 'high quality' mortgage book would cover any money owed to depositors and only shareholders (who should accept the risk of owning a company) would suffer financial loss.
NR is clearly no longer a going concern - who would trust them with their own money now their incompotence has been revealed? I assume there must be some political reason why it is not good for NR to collapse but it happens all the time with other companies and I don't see why tax payers money should be put at risk to save Labour's blushes.
Perhaps GB's blinks were having seen his life flash in front of his eyes whilst on the A30 near Heathrow; one false turn and dead as a dodo in plane crash.
If TB's epitaph is Iraq, will GB's be Northern Rock?
dave
Is there any possibility at all that the Govt knows what it is doing ?
Why would the hedge funds be feeling chipper - a Virgin takeover will give them 'almost' nothing - not much of an improvement on 'nothing' - and a lot less than they paid. Although I am a Rock shareholder since de-mutualisation, my sympathies rest with the Tax payer - our Management got us into this mess - and without the tax payer my shares would be worthless - Rock employees would be on the street and a once fine Newcastle institution would be shuttered. I suspect we may be inching towards the 'least worst' outcome.
I can scarcely believe what I'm reading ... I may be misunderstanding this situation (and as ever I rely on Robert and the blogerati to learn more) but it now seems that instead of nationalisation us taxpayers are now going to fund 'bransonisation', basically the government is going to give Branson (a marginal creditcard merchant allegedly without a banking licence) a free bank to play with without any risk or investment from himself. Goldman Sachs could never have sold the securitised debt of NRock for him on its own, that is precisely gallons more of the toxic subprime the markets are fleeing in panic from already, but now the taxpayer is going to purchase the whole lot of this geordie 'picture-loan advert' asbestos wholesale. Well why not give Branson the NHS or the Army to see if he can wring a few quid out of them too? Better yet why not let him have a few years as unelected prime minister or King for free, it would cost less than the £110 Billion we are planning to underwrite him with .. I really hope I've got this wrong.
So, Branson has been working away at Brown on the China trip. I guess that was worth flying on BA for afterall.
It would be political suicide for the government to nationalise Northern Rock.
It would face daily accusations of repossessing homes and throwing families out onto the streets.
It would also face accusations of usurious practices with hugh interest rates and hence profiteering.
Any bad debt provisions made would suggest imprudent lending by the government.
The EU would be under pressure from competitor UK banks to find government ownership anti-competitive and illegal.
A minefield!
It continues to be the case then that the Bank of England has found a way to lend more than £20 billion at an above market rate of interest to a profitable company who are able to meet all current liabilities and can cover their long-term liabilities with assets in the form of good quality residential mortgages. This looks like a good deal for the tax-payer to me.
You call it a 'game of chicken', I call it an ongoing Cock-up. All I hope is that the hedge funds get their wings clipped and their parsons noses well and truly rubbed in the dirt.
One can only hope that the snapping of the wishbone falls in the favour of the NR employees, the taxpayers, and the NR depositors.
Good analysis, but other areas also need clarifying. As the, presumably, short term debt is converted into long term (?) government gilts will the liability be removed from the national debt figures used to measure Gordunk's compliance with his golden rule? I suspect a bit more Enron style accounting will take these off balance sheet like the PFI guarantees.
As taxpayers, we should support Gordon Brown who is batting on our behalf.
Hedge Funds understand if not manage risk and cannot be surprised occasionally if they get caught.
Offer to give them a divi if they also buy the bonds.
Turn everyone into a winner instead of everyone a loser.
I am a keen Labour supporter but feel that Gordon brown is a person promoted beyond the limit of their ability. it turns out that he was the one far more concerned with politics and Tony was far more interested in principle (whether you agreed with it or not).
A final word to Gordon "be careful what you wish for......" (Not remotely original I know).
The fear about someone coming in and taking the upside is valid. Especially if Virgin get paid a wad of money every year just to use their brand.
But existing shareholders have taken a bath so upside for them is just crawling back up the hill. If existing shareholders inject enough equity then why sell NR at all? Management can be recruited. And I'm not sure the NR brand is dead.
First, theres a lot of loyalty in the North.
Second, a lot of deposits were not withdrawn in a panic. More in dribs and drabs, probably when people were sparked into looking at other savings rates elsewhere. I bet if NR offered the best savings rates around, new deposit insurance regulations and government guarantees would be enough for quite a few people.
Third, many people appreciate the work of the NR Foundation.
I would save with NR but in Ireland they offer 4.33%-4.5% for instant access and 5.22% is available elsewhere.
Well, that's made it clear where Brown will end up after leaving Downing Street - Goldman Sachs.
I thought that the whole point of "Virgin Rock" was that the Taxpayer was going to get paid back £10 to £15bn.
It the loans are converted into bonds the whole reason for Branson to take over goes out the window.
Northern Rock just as well be returned to a mutual BS with no big salaries for CEO's and a golden share for the taxpayers. There can be no sustainable future for the bank other than with assets of about £20bn and staff to match.
Good!
It is about time shareholders understood the fact that Stocks are a gamble.
Remember the small print?
"Shares may go up as well as down"
Apparently Northern Rock shareholders have forgotten and think that the Government should bail them out and return them all their money.
Absolutely not, you gambled, you lost, it is not this Government's nor it's taxpayers fault and nor our responsibility to bail you out.
Hard times are upon the building societies and banks offering mortgages.
It looks like one of them, NR, is going to be given state aid - however it is wrapped. What will the others think about this situation?
Do we really need dozens of highly tuned mortgaging machines at the moment?
What will the folk being made redundant at non aided banks think?
What will the idlers at NR actually be doing for their keep?
Cough splutter - is the whole "Banking Industry" about to be subsidized?
Excellent scoop Robert. I was never sanguine about the government's (pardon me, BOE's) rescue plan, simply because there wasn't one - a plan that is. The 'plan' was akin to a DIY patch. A bit of paint hre, another bit as the damp gets wors, a bit more, let's pait the room, house, garden shed, etc. There was no end in sight, and no commercial criteria were rolled out to frame a stop criterion. I come back to a point I made a couple of days ago. if the NR can be baile dout, why not the pension funds, and indeed my good friends in the hedge fund circus would like a bail out or two, or three. Why is the Treasury and BOE stopping at the NR, when so many other boats are leaky if not quite as holed beneath the line as NR?
The shareholders should just send a two word reply, "I protest". Then, when HMG sells THEIR property at a price of its own choosing, they hit the Chancellor with Art 17 of the Charter of Fundamental Rights, which HMG signed up to only a couple of months ago. This nice shiny legislation has dominion over UK legislation, and reads:
Right to property
1. Everyone has the right to own, use, dispose of and bequeath his or her lawfully acquired
possessions. No one may be deprived of his or her possessions, except in the public interest and in
the cases and under the conditions provided for by law, subject to fair compensation being paid in good
time for their loss. The use of property may be regulated by law in so far as is necessary for the general
interest.
The requirement on the Government to provide FAIR comepnsation opens a can of worms: what is fair under these circumstances, when much of the hole they're in has been dug by HMG? What WOULD Lloyds TSB have offered back at the end of the summer?
Brown & Darling have proved that they are truely incompetant!
Wasting £60+ billions of tax payers money on NR has set a dreadful precedent!
What if a few more so called banks go bust - do they plan to bail them out too?
The Northern Wreck Saga challenges the Forsyte Saga for entertainment value. And it proves the old saying that fact is much stranger - and incredible - than fiction. I simply cannot understand why this business was not left to go to the wall. The only losers would have been (a) shareholders - but then it's about time people realised shares aren't a miraculous horse-race where everyone wins; (b) borrowers with poor credit ratings etc whose loans wouldn't be taken by another lender - tough, maybe, but again this is the real world; (c) the 5000 staff - many of whom would have got other jobs. London's status as a haven free from government interference would have been enhanced. How much is Brown influenced by this being a North-Eastern business? What would have happened to a London Rock? At all events the PM has been exposed as a gutless, dithering tinkerman. I predict that the present proposals will be scuppered by EU regulations forbidding such anti-competitive support for individual businesses - but that Branson will wring millions (or more) from the Treasury by way of compensation for ultimately breaking the deal. There has to be at least one more twist to this farce ...
Hard times are upon the building societies and banks offering mortgages.
It looks like one of them, NR, is going to be given state aid - however it is wrapped. What will the others think about this situation?
Do we really need dozens of highly tuned mortgaging machines at the moment?
What will the folk being made redundant at non aided banks think?
What will the idlers at NR actually be doing for their keep?
Cough splutter - is the whole "Banking Industry" about to be subsidized?
I'm still astonished that the Treasury had £55bn kicking about with which to prop up Northern Rock in the first place - how many new hospitals/prisons/roads does that represent..?
#17, no that isn't the case. The BoE lent at base. The additional interest is rolled up into very, very junior debt to be paid off over five years. Even with the additional interest it is barely what is being charged to banks in the commercial world, remembering these are AAA banks and nobody is willing to touch NR with a barge pole. So in fact the UK government has lent to an insolvent company at below commercial rates.
If a bank gave a bankrupt a credit card with a rate of 5.7% would you claim it is making a "profit" of 0.2%?
Just had the misfortune to watch your piece about the government's handling of Northern Rock - what planet are you on and why do you cosy up so much to New Labour? Get some backbone man!
When will the chattering classes stop banging on about NR receiving £55bn of funding from the Govt. The figure is nearer £24bn after NR paid back £2bn last week (which didn't get hardly a mention in the press). The rest is a commitment from the Govt to guarantee loans and deposits . NO MONEY HAS CHANGED HANDS HERE AND IS EXTREMELY UNLIKELY TO (Geddit !)
I for one hope that NR can come through this as an independent going concern because ;
a) Many banks have taken covert funding from European Central banks (and some from BoE) but haven't been named and shamed as NR have. So you've got to assume that the vitriol coming from the media is personal. Where are you Robert ?
b) NR has been in the centre of a sh#tstorm for 4 months. During this time not one facet of the companies operations has suffered. The dedication of the staff and the determination to come through this is staggering and for their sake I hope the company has a future. It's a matter of pride to them that the business doesn't just fade away. Many companies could learn from the attitude displayed by NR staff.
c) If the funding is available, either from other banks, sovereign wealth funds or by securitising the Govt loans, then why not let NR manage itself back to health with a new board - while this is fanciful it is worth noting (seriously) that NR is very well managed, though badly directed - and you really do need to make that distinction. NR is the lowest cost and most efficient mortgage processor in Europe.
With the funding in place, do they really need Virgin or Elephant ??
d) Please do not underestimate the importance of NR Foundation. NR is an ethical company and it would be nice to see all Footsie companies pledge 5% of their profits to Charity (though unlikely, especially in London). This commitment has made an incredible difference to many people and the company should be praised for this initiative. Without NR many peoples lives would be poorer.
Best wishes to NR and all of its staff.
Ah yes, Bottler Brown bottled out of an election and bottled out at every turn with Northern Crock.
So now the taxpayer (i.e. you and I) is on the hook for the full fifty billion or so, for many years to come. The government is guaranteeing bonds at a time when the credit squeeze is getting worse, so will more than likely end up being called on the guarantee.
I wish the government would guarantee the ongoing success of my business instead of taxing me into oblivion every which way I turn.
It seems that Robert Peston is completely. Selling bonds is not the same as nationalisation, as long as these are not completely sold to big banking organisations and not to individuals.
Excuse me for being concerned but what happens to those that have mortgages with Northern Rock?
I have not heard any mention of the impact to those that have their family homes mortgaged with NR, only of the profits or losses that individuals will suffer. Isn't that the advice that we are given when investing in shares with companies?? We run the risk of loosing the money that has been invested??
what about EU non protection law - or we will see another mess?
As a member of the Northern Rock Small Shareholders Group I was at the EGM earlier this week. The two largest shareholders attended and spoke. Other shareholders were impressed by their commitment to the business and their long term view (they increased their shareholdeings when others bailed out, having previously been there for the long term.)
Yet again we get information by Government leak and spin, such as the thrusting of Branson's bid into the ³ÉÈË¿ìÊÖ headlines when shareholders had made it clear that this was their lest favourite option of three private sector solutions (the others being Olivant, led by Mr Arnold who turned around Abbey National, and the existing company and management going it alone).
Shareholders are sick and tired of being menaced by leakers and spinners. It didn't work before the EGM - shareholders voted two to one against what they seem to have wanted - and it won't work now. The shareholders are there for the long term. If it were not so, they'd have bailed out at £12 a share like ex directors. And to suggest they will get nothing is an attempt to rig the market price. European law will ensure that the threats about getting nothing will come to nothing (and in the context of billions of loans and guarantees, a few hundred millionas a fair price is almost neither here nor there.)
Shareholders want to see the Northern Rock brand and the Northern Rock Foundation charity continue, as many good quality jobs sustained as possible, and an independent, publicly quoted company base in Newcastle. The Branson bid especially, or nationalisation, don't come anywhere near what shareholders - who own the company despite everything - are likely to be prepared to vote for. All those who are trying to condition public opinion would be wise to think on this.
If Brown became an Investor in stocks and shares he would be what I call a loser.
Never have a stop loss on any of his shares.He would never make a decision after buying a share.
The bad shares would go bust.
That is the nature of the man.
For the good of the country I hope Labour get rid of him pretty quick or he is going to ruin our country.
-------------------------------------------
From here,if another bank get into difficulty will that bank get the same treatment.
Also why does Brown go down the road giving greater powers to the FSA surely it should be the Bank of England who get the greater power.
#36
I agree, I wonder if it now means that we will no longer see the government/hmrc as the petitioning creditor in winding up petitions?
Too many times in the case of big companies jobs are held to be worth more by way of state subsidies/grants than the employee of a small company who finds his job worth nothing.
Both of them (the employees)will no doubt however have the same commitments and responsibilities.
Post 28. Interesting thought!
I understand Cherie Blair has more time on her hands since leaving number 10 and is an expert on human rights law. I imagine she might even give the shareholders a cheap price to represeent them if only to place a stiletto between Gordon Brown's shoulder blades.
If the news this weekend is true re the Goldman's bond deal this may be the best flight Richard Branson ever took and on a BA flight as well. Oh the irony!
as a retired bond trader and derivatives specialist, I can assure you the taxpayer is being ripped off. The bonds, as devised by Goldman Sachs, securing the cashflows from the mortgages by a guarantee by the UK, should trade flat to gilts ---- they will be gilts. It's just common sense that the book should therefore pass in to government hands. Clearly if NRK is *not* nationalised, we get all the downside (because the value of the book is decreasing and in addition we have to make up shortfalls to bond holders if defaults increase (highly likely) but none of the upside as this will go to shareholders! Why are people in this country so incredibly dumb where money is concerned?
Brave Sir Robin Ashby wrote: "shareholders - who own the company despite everything "
Put your money where you mouth is then. You may "own" the company, but the majority of shareholders have never put a penny into the company - just other shareholder's pockets when they bought the shares.
Shareholders came so close to killing us by Nationalisation on Tuesday and if they reject the bid from Virgin, and we WILL be nationalised.
Has NR changed the business model yet? If not why won't this happen again and again and...
The goverment is loosing its nerve and I fear the goverment will end up proping up the bank for many years which will be music to the industry's ears. If the goverment doesn't want to nationalise and sells the sweetened bonds it will send a clear message to other banks that the taxpayer will bail you out whenever the going gets rough. I thought all the risk was meant to be taken by shareholders thats why they have to genetrate large proffits but if these bonds were sold it would show the private companies they could do what they like as they knopw if they get into difficulty then they can always rely on the Bank of England to bail them out with no risk of loosing their investments. It seems heads they win tails the taxpayer looses.
Well, some months ago I said Brown would move heaven and earth to protect his northern stronghold of 29 MPs. Well he has done it now by shifting all the debt to a future government - that hopefully he will be no part.
Too clever by half and as devious as ever.
my house is for sale because i cannot afford to run it i go to the bank with this problem and because of the fact that i have 29 labour mps living in my house the bank agree to a remortgage of my house at a new interest rate that they know i cannot possibly afford even if i win the lotterry every week for the next 50.000 years. it becomes apparent that the position is impossible so the bank gets one of its friends to buy my house with money that they are going to guarantee by means of a bond that they are going to advance
all this is done on a jolly jaunt to china at taxpayers expence
does this sound familiar
the problem is the bond id guaranteed by the banks shareholders and is a liability on its balance sheet and the house is never going to cover the value of the bond
Brown hasn't blinked, and I hope you retract this headline. The shareholders, in particular the hedge Funds have been sent packing, and the threat of nationalisation is still there. Who cares about a narrow interpretation of Public sector debt. The truth is that a massive financial crisis has, so far been averted and this is what the Govt surely is expected to do.
branson was on browns shirt tail in china purely to try and tie up a deal over northen rock,sleaze again, ask branson how much he is likely to make out of it and you wont get an answer, also ask him does he realise that as a taxpayer if i buy some of the bonds designed to push this deal through, say £5000 worth, it would have cost me £7000 taking into consideration the £2000 already gone that way via the £55 billion already loaned,and i say anyone buying these bonds should think three times not twice.
The ³ÉÈË¿ìÊÖ is still apparently not satisfied with the hysterical reporting you did when the original leak about the last resort funding came to you (and ultimately your and the general press treatment heavily influenced - if did not cause even - the 'bank run').
You persist in painting an unfair and scaremongering account of the true position; as does your Robert Preston in his broadcasts today.
NR currently owes the £25b to the Taxpayer, by virtue of a loan made to it - at a penal interest charge - from the Government.
The other depositor protection guarantees apply to all banks.
The proposal now is that this £25m loan is repaid to the Government by NR/Government issuing profitable bonds, secured by appropriate mortgage assets of the Company of course ('ring fenced assets').
Even if a desperate housing crisis really were to occur, how many defaulters do you think NR would actually have, given their excellent lending record and low defaults? Very few indeed. In any case, if people default on their mortgage their debts are covered in nearly all cases by the mortgage secured on their property; so, most cash, if not the lot,will be recovered and available to meet the bond payments
And then there is still another £75b worth of mortgage assets NOT assigned for this purpose, ie available in reserve.
Therefore, the likelihood of the Government having to actually fund ANY of this Bond lending at all is absolutely infinitesimal...Nil Chance.
Yet, what does the ³ÉÈË¿ìÊÖ do? You go on mis-representing the deal as the Taxpayer being liable for the full £25b. (as if the taxpayer will have to find that cash) and therefore creating yet more misunderstanding & hysteria.
Why don't you just professionally report the salient true facts to the people, giving the accurate clarifications people might need, without prejudice and devilment.
Very disappointed with the ³ÉÈË¿ìÊÖ throughout this sorry saga, especially as you seem to still want to continue the misrepresentation and myths even now; for whose pleasure and benefit I wonder?
(Re post 40)
I totally agree, except, the shareholders may not get the chance to decide..as Big Gordon (tongue in cheek at this point) will decide what is acceptable to HMG and blackmail the shareholders into submission with his threat of administration or nationalisation with NIL or peanuts compensation.
He and his cronies will (indeed do in the document today ) argue that NR the Company has no value without Government intervention (which he will withdraw of course).
The very unhappy small people being blackmailed thus will no doubt improve Labour's chances of re-election from NIL, to MINUS 25 billion or more.
But alas, we'll still be broke and broken. (Well, it is Bad Monday).
Come on Oliphant & Co; you are the new Niall Quinn.
I wonder if Gordon Brown, or Alistair Darling, would have "rescued" Northern Rock if it had been based in, say, any prosperous SE Town. No votes you see!!!
Northern Rock is yet another instance of mis-management where the top dogs keep their over-paid jobs and pensions, get bailed out and the public has to suffer by paying for it. Is Gordon Brown now content in having stolen our pensions, buoyed up the Ministers pay packages and pensions (his included), that he has to ask his "subjects" to bail him out? And then just to cap it all, his buddy George Dubbular has a crisis with his empire. Are we to bail him out also?
Number 33 half makes a good point. The repayment of the premium element of the interest has indeed been postponed. However the fact remains that the money has been LENT not given and the bulk of the interest is still due and payable at the agreed times - it is therefore as good a deal for the Bank of England as any lending which it undertakes.
To liken this to lending money to a bankrupt is ridiculous however since Northern Rock controls assets which substantially exceed its liabilities - a bankrupt is by definition in the opposite situation.
Maybe I am too slow to understand it properly and there is no end of missinformation it seems but why did the government have to step in anyway?
Why did they not just let NR go broke?
It is not like all the UK homeowners with mortgages would have lost their homes?
In the 90's I was made redundant twice from big companies that became insolvent and you had to just find another job. I ended up loosing my house as I couldn't pay the mortgage and bills. There was no government bail out. I remember from the company insolvancy meetings that some rather heated investors in the companies lost a lot of their investments. Even us employees lost months of salaries and in my case all my pension. We were paid pennies in the £ after preferential creditors or secured borrowings were paid off and the administrators sent completely unintelligable reports for a few years afterwards with a cheque every now and then as the assests were 'realised'.
If we knew that the problem was bad debts in the US why on earth does the UK tax payer have to throw more money at this it even if it is apparently secured? NR must be saying "Oops we made a mistake but don't worry the tax payer will pay up for us..." totally mad.
What exactly is the legislation that allows this and how do I set up a business that gets funding like this from the treasury?
Surely it is bad enough the tax burden we all have already and there is not enough money being spent on public services without this drain?
#56 "To liken this to lending money to a bankrupt is ridiculous however since Northern Rock controls assets which substantially exceed its liabilities - a bankrupt is by definition in the opposite situation."
Then why did it need to get a £25b loan?
#40 And to suggest they will get nothing is an attempt to rig the market price. European law will ensure that the threats about getting nothing will come to nothing (and in the context of billions of loans and guarantees, a few hundred millionas a fair price is almost neither here nor there.)
If NR's worth so very much more than a few hundred mill, why's that not reflected in the share price?
And if the Govt hadn't bailed NR out with loans, what would it be worth then?
Sorry if these are ignorant queries!
With regard to Northern Rock it appears that a lot of people are being wise after the event. Here is a quote from the Questor Column of the Daily Telegraph dated 26 January 2006.
"Northern Rock has an impressive team and a strong business model. We said buy in November, and think the shares should still do well. If the shares show any signs of weakness, buy some more. Otherwise hold."
In the Sunday Telegraph dated 27 January 2008 there was a list of the best fixed-rate bonds. Guess who headed the list with 6.90%?
Northern Rock.
Should there not be some independent inquiry into this shambles, and any conflicts of interest amongst senior government figures, as well as simple monumental incompetence?