From the Times: Northern Rock to be sold by end of year

ChuckCash

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article6169327.ece

Some highlights of the article:

NORTHERN ROCK is to be sold off by the end of the year under a fast-track government plan to start clawing back some of the hundreds of billions of pounds of taxpayers’ money ploughed into the banking sector.
...
Northern Rock’s most toxic loans are to be siphoned off into a “bad bank” that will remain in government hands.
...
In evidence to a judicial review into the bank’s collapse last year, John Kingman, the civil servant who oversaw the nationalisation, revealed the government expected to lose about £1.3 billion on the deal.

baby_boomer

The_Times wrote:

In spite of the sizeable potential losses on a sale, it is understood that the Treasury is keen to prove to the voting public that there is an exit strategy for the numerous bank bailouts.

What a complete load of garbage

It's not an exit strategy - just a load of spin, combined with smoke & mirrors. It doesn't make any real progress.

The government / taxpayer will keep all of the serious & growing liabilities which will remain unquantifiable beyond the next election.

The main result will be unemployment and branch closures as the purchaser of the savings department (Santander was mentioned) cuts costs.

And it has absolutely no bearing on how the government is going to get out of its [our] huge investment in Lloyds / Halifax / RBS which is its [our] main headache.

Once upon a time in this country the Treasury had authority and carried clout. Now it seems to act as an offshoot of the re-election department for whatever government is in power. You can't believe a word it says [sorry, leaks to the press ] on anything .

MarkyMarkD

The government are not going to keep unquantifiable liabilities.

They are going to keep the poorest quality assets.

The value of these assets can't (realistically) be less than zero.

So, the maximum loss they can make IS quantifiable.

The flaw in the plan is that they will be selling off the better quality assets at a time when there is hardly any market for secondhand mortgages - and therefore they will not get full value. So they will realise an immediate loss, just for the "benefit" of getting them off their hands.

The other bank bailouts (apart from B&B and Dunfermline Building Society (even though that's not a bank ) are completely different. In most cases, the government has acquired shares in the banks. They can only sensibly realise these when the value of bank shares has increased sufficiently. Although some have improved from the extreme lows, it is unconnected to what they do with Northern Rock (and B&B) IMHO.

baby_boomer

Fair comment. I meant that the losses to the taxpayer won't be quantifiable.

You are technically right to say there is a bottom floor of £zero for the "assets" that remain with the taxpayer.

NR assets at the end of 2008 were £91bn - but these had been reducing month by month as mortgages were redeemed - although I think that NR mortgage lending has recently been revived in a policy reversal?

The article says the government is "hoping" for a £1.3bn loss - which is not of the same order as your "floor" of £91bn

apt

Makes about as much sense as selling off the gold reserves when prices were low.

baby_boomer

Or buying its own government gilts via quantative easing before an era of inflation?

Milarky

Why a private sale and not an IPO for the 'good bank' assets? (Too much uncertainty? Too 'politically touchy'? Bleeding the stock market of precious liquidity?)

MarkyMarkD

My floor wasn't a loss of £91bn, because it only related to the "bad" assets, not the outdated total asset figure of £91bn.

But in any case, now is not a good time to sell mortgages and the government would be acting foolishly.

I don't think it makes much difference whether there is a private sale or an IPO - the price is still going to be poor.

theGrinch

i tend to agree that its politicans misleading again - this time with an election around the corner in 2010 (what will be the corner when they reannounce this).

for a start, it would only be a partial sale of the best bits, no doubt a stitch up with a friendly party. second, would the time be the best time to sell? from my reading, there is a huge loss to be had on northern rock.