Northern Rock & Giant Space Rocks......

Generali

Thrugelmir wrote: »

When dealing with thousands of individual debts and assets where do you start to quantify the likely outcome.

I've not worked on that side of the business so I don't really know.

I would guess that you use a rear view mirror approach: you look at your default rate in the last quarter or year and apply it to the rest of the loans on your books.

Impairment is a number that you need to get past the auditors I suspect rather than anything grounded in reality.

antrobus

HAMISH_MCTAVISH wrote: »

Oh I'm most certainly not qualified to say that.

But it's not me saying it....


http://www.thisismoney.co.uk/money/markets/article-3127261/Bad-bank-hits-profit-Lender-set-deal-wreckage-Northern-Rock-Bradford-Bingley-profitable-RBS-TSB-Virgin-Money-together.html#ixzz3rMxqr7Q0

Similar articles have appeared annually since UKAR was formed....

Actually UKAR made £771.6m after tax in 2015, compared to £1,066.0m in 2014. Of course, any half way decent accountant can subtract a few numbers in order to show an increase in 'underlying profit' despite what it actually shows on the bottom line.:)

Generali

antrobus wrote: »

Actually UKAR made £771.6m after tax in 2015, compared to £1,066.0m in 2014. Of course, any half way decent accountant can subtract a few numbers in order to show an increase in 'underlying profit' despite what it actually shows on the bottom line.:)

If we're looking at the cost/profit made by the NRK nationalisation then changes in profit yoy aren't terribly helpful.

The last time I looked at NRAM (2012) the whole of the mortgage book was held on the balance sheet as a swap with the Treasury as the counterparty. All the mortgages were held off the balance sheet and the swap was the majority of the assets by a long way.

As the profits of NRAM come, or at least came, from changes in the valuation of this swap then we need to understand the terms of the swap in order to understand where NRAM makes its money.

I don't believe that the terms of the swap are available although presumably a public information request could be put in to try to find the terms.

I remain strongly of the opinion that looking at NRAM on a P&L basis is a bit silly at best.

antrobus

Generali wrote: »

In theory that should be covered by the impairments charge.

I suspect that a large part of the 'profit' is simply the uplift to the value of a fixed rate mortgage by interest rates falling and more recently spreads falling too.

Or the fact that the NR standard variable rate is 4.79%. It's not that difficult to make money on a mortgage book if you don't have to compete for new business, and you have a lot of existing borrowers who no one else really wants.:)

Generali

antrobus wrote: »

Or the fact that the NR standard variable rate is 4.79%. It's not that difficult to make money on a mortgage book if you don't have to compete for new business, and you have a lot of existing borrowers who no one else really wants.:)

I agree.

4.79% is probably a fairly impaired secured borrowing rate in the UK these days, even if your mortgage book is skewed towards the Northern Hell Hole.

If, on average, your borrowers aren't impaired then perhaps you're doing better than the kitchen sink represented.

antrobus

Generali wrote: »

...As the profits of NRAM come, or at least came, from changes in the valuation of this swap then we need to understand the terms of the swap in order to understand where NRAM makes its money..

UKAR has made a decent profit buying back NR and B&B capital instruments at a discount. Certainly £1bn plus.

wotsthat

Thrugelmir wrote: »

Winding up the good loans is the easy part. Eventually the dregs will be left. Then significant costs may well be incurred well above any income generated.

I bet never in a million years did you expect >85% of the assets would be 'good' so whatever dregs are left will be way below your initial expectations.

The pessimists dramatically underestimate the propensity of people to keep paying their mortgages.

Generali

antrobus wrote: »

UKAR has made a decent profit buying back NR and B&B capital instruments at a discount. Certainly £1bn plus.

Do you know how much has come from spreads coming down, from rates falling and from putting in high losses up front in order to flatter future asset prices?

I made a bunch of money isn't really an adequate measure.

HAMISH_MCTAVISH

wotsthat wrote: »

The pessimists dramatically underestimate the propensity of people to keep paying their mortgages.

They do indeed.

antrobus

Generali wrote: »

Do you know how much has come from spreads coming down, from rates falling and from putting in high losses up front in order to flatter future asset prices?...

I know that the old NR made impairement losses of some £3.4bn over the three years 2007-2009, sufficient to blow away all its capital. Many of those impairment losses will have since have been realised. But on the basis that UKAR is now enjoing negative impairment losses, I'd guess that at least some of it was overdone.

And I know that UKAR seems to have an interest margin of around 2.5%. Which is a good deal better than the Nationwide's 1.5%. You can always make money in the short run on a closed book.

Generali wrote: »

...I made a bunch of money isn't really an adequate measure.

It is if you get the cold hard cash. £13bn is £13bn if you get the money in the bank. (As long as it's a solvent bank.)