Northern Rock Crisis Article Discussion

Elowenn_2

Thank you for the article, it's always good to get the actual facts rather than the scaremongering.

20 years ago I got an endowment mortgage. The endowment policy was with Legal and General. A while back the Legal and General logo disappeared from the letters they sent and was replaced by Northern Rock, when I phoned to check it, they said that they now held the policy.

The policy is for £33,000, but there is a potential shortfall of anything from £4,000 upwards. I don't for one minute think that NR will collapse [providing people stop panicking], but I would like some information about what all this means for me and my endowment policy please. Thank you.

Scotland_the_Brave

Once again the media is doing its best to detroy a good solid institution in it's pursuit of it's own profit. It cannot wait to destroy the "succuessful" in this country.

Reestit_Mutton

I'm sorry Martin, I disagree with you here. It's not so much a disagreement over whether there is any reason to panic or not, more to do with the thrust of your arguments. Without going into too much technical detail, it's worth pointing out a few facts that are at odds with your article:

(1) It's misleading to say that the loan facility from the BoE is just an overdraft put in place "just in case" it's needed. It may not have been necessary to call on this facility yet. However it is a certainty that, without a takeover, it will be necessary for NR to use this overdraft facility in the near term. Without this facility, NR would have been unable to continue operating as they would very quickly have found themselves unable to refinance their commercial paper as and when their existing packages of short term debt expire. What's more, NR wouldn't have approached the bank if all other avenues hadn't already been exhausted as, by definition, it is a means of last resort and one that was guaranteed to hugely embarrass NR.

(2) It's misleading to say that the loan facility is "literally unlimited", as you put it - it has to be backed by prime collateral that isn't already used as collateral for other forms of debt. In NR's case, that currently equates to about £30bn (about 25% of their asset base).

Of course, prolonged panic will only worsen the situation and I certainly don't wish to feed that panic as I also feel that it is unnecessary (my reasons are probably too numerous and detailed to go into here). However, it is equally dangerous to provide hope based on inaccurate information.

Much of the above information can be found in the Northern Rock press release:
http://companyinfo.northernrock.co.uk/investorRelations/news/viewFeedarticle.aspx?id=50047106555046

I'm sorry, I don't like disagreeing with you publicly but the above had to be said to put matters straight.

Reestit Mutton

johnllew

I believe everyone's money is safe but NR no longer has a future - there is no confidence in this bank and that's what's important. Such a shame.

caveman38

Martin. do you think that if as been reported in the media that NR is sold in chunks. That the money savers still have with NR will be 100% safe or would that side of things be referred to compensation by the FSA scheme.
My point being that if it is accurate should us with more than the safety net figure apply for our money now with loss of interest ie Bonds

MarkyMarkD

sdooley wrote: »

The people who could be hurt by this, and I have seen nothing on this in the press, are buyers who have arranged mortgages with Northern Rock, perhaps even exchanged contracts on a house, and not yet drawn down funds. People in that situation should rearrange finance elsewhere if at all possible - and actually by doing so may help NR with its finances as its problem is not trading income v expenditure (its costs are famously low and its default rate on mortgages also) but just that it needs to write new business and can't borrow the money to do so.

You've seen nothing about this in the press because you are wrong and your advice is very misleading.

If someone has a mortgage offer from NR, NR will fulfil that mortgage offer.

If they instead go and get another mortgage offer from another lender, they'll have to pay valuation fees and the like again and (presumably) won't get as good a rate as (presumably) they chose NR in the first place because they were the best value for their circumstances.

If the NR mortgage offer is for a fixed rate product, there's no way they will ever have to pay anything more than the fixed rate on the offer.

If the NR mortgage offer is for a discounted product, there is the risk that NR's SVR may be increased. But that isn't particularly likely.

If the NR mortgage offer is for a tracker product, there is again no way they will ever have to pay anything more than the differential to BBR stated on the offer.

So, in summary, if you have a mortgage offer from NR, don't worry.

Anodomini

May I point out that the maximum compensation per bank customer (not per account) is £31700 not £35000

R:eek: egards

regularsaver1

The Financial Services Compensation Scheme was established under the Financial Services and Markets Act 2000 to provide protection to customers if companies experience financial difficulties.

It covers different types of investments in different ways. Where a customer has made deposits in a savings or bank account, payments under the scheme are limited to 100% of the first £2,000 and 90% of the next £33,000 of the customer’s total deposits, subject to a maximum payment to any one depositor of £31,700.

Rubic

Hi, I left UK for a month's holiday on 12th intending to transfer money from Northern Rock Silver Surfer to my Nationwide Flexaccount as required. When I heard about the "crisis" on Friday, I thought that I would transfer sufficient funds to keep me going for a couple of weeks, but I could not access the website. When I finally logged on a few minutes ago, I was down to my last £43 in my Flexaccount, so I decided to join the herd and panic ie I closed my account. This would not have happened had I been able to access the website as normal!

$$$_12

It's worth saying that the FSCS doesn't seem to be a bottomless pit (in fact there is less money in it for savers than has already been withdrawn from Northern Rock).

http://www.fsa.gov.uk/pubs/cp/cp07_05.pdf

NB the above are proposals to extend the existing scheme (it's not clear how much is currently available - but presumably less).

At best, Northern Rock is being managed incompetently in:

1. Needing to set up emergency funding in the first place
2. Mismanaging the PR around the loan
3. Failing to provide reassurance to customers who can't access their internet account

I agree that everyone in Northern Rock (except shareholders) are likely to get their money back but not everyone trusts the authorities reassurances.

Hardly surprising given there are plenty of well known examples of the little guy getting screwed while the bankers, politicians and their cronies escape with the cash.