Northern Wreck has issues with "Granite".

tomstickland

http://ftalphaville.ft.com/blog/2008/11/20/18468/stony-broke-fresh-rumblings-from-northern-rock/

Granite is Northern Rock’s master-issuer trust

a non-asset trigger event is a problem. Not just for Granite, but for Northern Rock, by extension the government, and beyond that, the UK mortgage market as a whole.
Northern Rock might be nationalised, its creditors and depositors guaranteed by HM Government. But the underlying securitisation vehicle - some £38bn of housing assets - has to fend for itself.
A non-asset trigger event means that Northern Rock - the company - will no longer receive any payments from Granite - the trust - until all the trust noteholders have been repaid.

cogito

Well, I've read it but haven't the foggiest idea what it's all about. Could someone explain in words of one syllable?

BenL

I think Granite is a whole-owned (by some fiddling around complicated ownership rules) part of Northern Rock hidden away offshore in the shadows that raises the money in the money markets that northern rock lent out.

When the UK taxpayer took over Northern Rock we didn't get Granite, maybe Granite holds all the rights to the houses NR have leant mortgages on.

I think this is most of it, someone with more knowledge maybe around later

WTF?_2

cogito wrote: »

Well, I've read it but haven't the foggiest idea what it's all about. Could someone explain in words of one syllable?

Grantite is a massive (50bn I think) fund of NR mortgages, the 'best' mortgages, which pays dividends to a group of high powered corporate investors.

It wasn't nationalised along with the rest of NR's dodgy mortgages but NR is obliged to replace underperforming assets within Granite with 'good' mortgages or presumably, cash compensation.

As the article notes, it's also the single biggest funder of the UK mortgage market. If it started to fail, taxpayers would potentially have to make good on the £50 billion fund and good mortgage offers would probably even get harder to find.

More about Granite:

http://www.thisismoney.co.uk/investing-and-markets/article.html?in_article_id=431336&in_page_id=3

kennyboy66_2

I'll add my name to the list of people who don't even understand the FT summary, never mind the 400 page prospectus.

Doubt if it will stop people speculating that this is either a disaster waiting to happen or that it won't make much difference.

amcluesent

IIRC didn't Vince Cable highlight that 'Granite' was an asset stripping mechanism of the gold-plated debt to benefit persons unknown, muggins the taxpayer being left with the 'rubbish'.

Trollfever

Financial Smoke and Mirrors to generate vast bonuses.

I am convinced that the folks actually running the banks did not understand what was going on, but were too afraid to admit it.

tomstickland

From what I read, I understand Granite to be a company set up to take money from investors and then pass it on to Northern Wreck.

HankMcSpank

Can we quit all this talk about problems with Granite....there are plenty of other materials that can be sourced for kitchen worktops.

There's much more serious stuff about that needs debating on here.

baileysbattlebus

from NR website

The impact of this event is that the Company, as a beneficiary of the Granite mortgages trust, will not receive distributions of principal in respect of the mortgage loans that have been securitised and are held in the Granite mortgages trust, generally until all holders of Granite residential mortgage-backed securities have been repaid in full. The Granite securities are not guaranteed by the Company or by HM Treasury.

Securitisation is about turning a future income stream in to cash now - which businesses use to grow or expand.

Granite does this for NR. Lots of lenders have a "Granite", it's quite a common setup.

NR sells the mortgages it has issued to borrowers to Granite,who then raise the money to buy the mortgages by selling bonds to other investors. The bonds pay regular interest to the bond holders from the mortgage payments of the borrowers.

They appeal to investors who need regular and reliable returns, like pension funds.

Granite is not a company and it is not intended to make money. Its function is to act as a conduit for payments between NR and the bond holders and give the bond holders the assurance that they have first claim on the mortgages. NR administer the mortgages - takes the payments etc

Granite should be financially neutral, it should collect the money from NR and then payout exactly the same amount to the bond holders. Once all the mortgages have been paid, Granite should be empty and should close.

Put simply that's Granite

The non asset trigger of today can't have come as a big surprise as no new mortgages have been added to Granite since NR was nationalised, it probably breached it's contract with Granite.

Granite will use the money NR would have received to repay bonds, that means that some of the best ranking bonds will be repaid sooner and lower ranking bonds will be paid later than they should.


I don't know how much money NR will lose, I had a quick look their most recent annual statement - but lost the plot when I got to the directors renumeration and got engrossed in how much they got paid and how big their pensions were etc.

beingjdc

cogito wrote: »

Well, I've read it but haven't the foggiest idea what it's all about. Could someone explain in words of one syllable?

We (HMG)
Owe
£38bn
More
Than
We
Were
Told
We
Did
For
The
NR
Bail
Out