Northern Rock going bust question

MortgageMamma

Think I'm going to take a gamble and buy some NR shares.....you never know....

kennyboy66_2

dunstonh wrote: »

NR really do look ripe for a takeover. A good quality lending book with liabilities around 20% of assets and but valued 45% lower than earlier in the year.

Good luck with this share buying project.

1) Savings customers leaving in droves, meaning that NR will have to borrow yet more at penal rates.

2) Who knows what the quality of their lending book looks like in 12 months time. BTL & 125% mortgages probably won't look great.

3) A smallish branch network, low overheads, little room for cost savings.

4) Zero credibility / value as a brand

A forced marriage seems more likely than a takeover.
More likely is that a managed closure with the rest of the banks carving up its mortgage book.

Shareholders won't be wiped out but will struggle to get over 400p - and probably a good deal less.

It's got 4 legs, a lead and it barks. Yes its a dog.

kennyboy66_2

MortgageMamma wrote: »

Think I'm going to take a gamble and buy some NR shares.....you never know....

Keep us posted on this "investment".

ELIZA_D

thanks homer_j...read it .

HelpWhereIcan

http://uk.reuters.com/article/UKNews1/idUKL169575720070916

So far, Northern Rock has not had to use the facility despite estimates that customers have taken more than 1.5 billion pounds already, or around 6 percent of its deposits.

Lloyds TSB held talks to mount a rescue of its rival, but a deal was ultimately blocked by the BoE and Financial Services Authority, several industry sources said.

The BoE has said any buyer would inherit the emergency funding line for as long as it had before expiry.

Other banks that have cast an eye on Northern Rock and who could participate in buying a slice of its mortgages include HSBC, Barclays and Royal Bank of Scotland, according to industry sources and media reports.

Northern Rock reportedly expected £2bn to be withdrawn on Friday alone so could be doing better than even they expected.

BUT

The Sunday Telegraph said one plan under discussion between the authorities was effectively a private sector bailout of Northern Rock that would divide up its mortgage loan portfolio.

The paper quoted one source close to Northern Rock saying such a break-up was inevitable if the bank's shares continued to slide on Monday

Someone I know said he would "buy at 250 knowing that trading is likely to be suspended once they go below 200 and that there is a risk there". He is no expert and just expressing an opinion of a private individual.

I don't think anyone has suggested that NR shares are safe buy (or even a good one), but it is possible that the shorters will be buying back on Monday - who knows.

The fact is that their mortgage book is likely to be one of the better ones in the market. The deals it has securitised are (Iin the main) gone and no worry to them. The loans that remain with them are all prime (Northern Rock only ever loaned money on behalf of Lehman Brothers for it's Sub Prime lending.) Those of us that have dealt with NR know that their lending policy has rarely ever been 'loose' and I can indeed remember having 4 clients in a row declined by Northern Rock for 'no apparent reason'.

They are not a target for someone looking to make cost savings and never have been (hence no buyout earlier in the year). They do however, have a wide distribution and present a reasonable prospect for a parent company to do some 'out of policy lending' - pretty much as Yorkshire B Soc do with Accord, Britannia do with Platform, Nationwide/Portman do with UCB/TMW and HBoS do with TMB and Birmingham Midshires. They could lose the (tainted) brand name of Northern Rock, but make use of it's distribution network and technology as well as the underwriting/processing staff in Sunderland.

HSBC for example has a large branch network, but no way of dealing with brokers (something it has been making noises about doing), no 100% portfolio (and Together is probably the most sucessful 100% model recently), no widespread buy to let or lifetime mortgage propostition. These are all areas where NR has a ready made network/model to use. Just ask Yorkshire B Soc how much it took to get Accord off the ground (and how Accord now outstrips it's parent in terms of mortgage lending and related profit).

Buying NRK now is a big risk - but one that could pay off if you buy at 350 and the carve up/takeover gets you 400.

Just my opinion and I am yet to make my mind up - Ed's point about looking to A&L, B&B etc could be a thought as well.

kennyboy66_2

HelpWhereIcan wrote: »

http://uk.reuters.com/article/UKNews1/idUKL169575720070916

HSBC for example has a large branch network, but no way of dealing with brokers (something it has been making noises about doing), no 100% portfolio (and Together is probably the most sucessful 100% model recently), no widespread buy to let or lifetime mortgage propostition. These are all areas where NR has a ready made network/model to use. Just ask Yorkshire B Soc how much it took to get Accord off the ground (and how Accord now outstrips it's parent in terms of mortgage lending and related profit).

Buying NRK now is a big risk - but one that could pay off if you buy at 350 and the carve up/takeover gets you 400.

Just my opinion and I am yet to make my mind up - Ed's point about looking to A&L, B&B etc could be a thought as well.

So the most attractive business model part of Northern Rock are;

1) 100% mortgage lending.
2) Buy to Let.
3) Lifetime mortages.

I'll be passing on this one.

Someone will make money on Northern Rock during its demise, however as usual its unlikely to be small shareholders buying now

Another 30% down, opening this morning.

Anyone suggesting these shares are a long term investment is living on fantasy island. More akin to a gamble on red or black on a roulette wheel.


"the plane boss, the plane"

dunstonh

If you are buying shares now in NR then its not for future profitability. Its on the basis that the share price is undervaluing the assets of the company and that a takeover will take place. Reading a number of analyst comments last week suggested that the asset value of the company would see a share price around 450-500. However, a drop into the 300s was anticipated before a recovery is likely to occur.

We need to remember that whilst the brand is now terminally damaged, it is solvent and profitable. A rebound on that share price is possible. Especially if they do not draw on the BoE facility and another bank doesnt come in for them straight away. However, a further drop is still possible. If no buyer comes and the business is left to wind down over the years then a share price of less than £2 is likely.

HelpWhereIcan

kennyboy66 wrote: »

So the most attractive business model part of Northern Rock are;

1) 100% mortgage lending.
2) Buy to Let.
3) Lifetime mortages.

I'll be passing on this one.

As will most HPC regulars.

Northern Rock's arrears book is one of the lowest in the market. For mortgages in general, Buy to Let have much lower arrears levels than residential and Lifetime mortgages have no significant arrears.

These are areas that lenders (to one extent or another) see as profitable and Northern Rock has a track record in underwriting and operating in these markets profitably. It is the infrastructure and experience in these areas (as well as the more general distribution infrastructure) that is attractive to a buyer.

The mortgage book has a value, but not just because it is of the types above (they also offer a very good flexible and have been very competitive with standard fixes), but rather because of the way they have been originated and underwritten etc - that is something a large company would pay to buy 'off the shelf' rather than build from nothing.

kennyboy66 wrote: »

Someone will make money on Northern Rock during its demise, however as usual its unlikely to be small shareholders buying now

Another 30% down, opening this morning.

which most people who have done their research would expect - as I said, I know someone with a buy at 250 strategy in mind

kennyboy66 wrote: »

Anyone suggesting these shares are a long term investment is living on fantasy island. More akin to a gamble on red or black on a roulette wheel.

As are most share purchases - there are those that are just as sure there will be a buyer as you are that the whole thing will fold.

dunstonh wrote: »

If no buyer comes and the business is left to wind down over the years then a share price of less than £2 is likely.

An analyst report I saw valued the company at 185 assuming that the mortgage book was carved up/allowed to run down and no buyer came in for it.

Hence the risk in buying hoping for a takeover, but this is offset by an expectation of 400 plus for the company being bought out.

Jolanta_Nowak

dunstonh wrote: »

The NR position is unchanged. Current deals will already have been negotiated on the money markets prior to the credit crunch. Its the next batch of deals that are likely to be less favourable, should NR be required to draw upon the BoE facility. Something it has not done yet.

Yep... NR has just announced that they haven't felt the remotest need to draw on the BoE arrangement as yet.

I suppose this is a classic case of unjustified mob instinct.

tlck9

Debs12 wrote: »

We have a mortgage with Northern Rock and and about too move home on 19th October. On a fixed rate 3 year deal (with a high redemption well high enough). On our deal we stay on the same mortgage and deal and borrow more on the same rate (5.09%).

We are slightly concenred that if it all goes wrong they wont have the addtional funds for us on the 19th Ocotober???
Forget savers I think we are the ones that have to be slighly concerend.

I've spoken with My advisor today as I paid my fees for a 5 year fixed rate on Friday, told today that they will honour the rates as they received the application this morning...

I suppose the only thing with being fairly early days is that their underwriting may take a slightly different view of new business and be more stringent...and not lend on high loan to value

especially being 100% - although I'm told with an A credit rating and already a mortgage certificate then I should be okay

heres hoping