Northern Rock Crisis Article Discussion

harryhound

gt94sss2 wrote: »

This isn't necessarily true.

While due diligence happens, this is normally after the takeover deal has been announced but before its completed.

However, the only shareholders who have to be asked to accept the deal are Northern Rocks.

The company buying Northern Rock does not have to ask its shareholders - unless it is a 'big' deal in relation to its existing business.

For example, when Nationwide 'merged' with Portman, Nationwide members didn't get a say as Portman was less than 20% Nationwide's size.. its a similar principle with plcs.

A company like HSBC could easily buy NR without asking its own shareholders - it would only be a very minor deal for them given the size of their business.

Regards
Sunil

Hi Sunil,

Perhaps I've got the decimal point in the wrong place, but isn't NR's loan book worth something like 96 billion? That sounds like a lot of money to me.

Barclays, contemplating their little Dutch sweetheart deal, wrote to me asking for my permission and I seem to remember they were proposing to punt less than half that 96 billion figure? I was not very keen on the Dutch venture, it smelt a bit of poison pill desperation. I would expect due diligence before they came up with a rescue for NR. (A lot of NR's loans must be nice fresh mortgages discounted into a bubble housing market?).

Harry

Thinks: Must pay off the Egg money card, Citi Group might be thankful for the cash.

harryhound

keyboardman wrote: »

i am new to the site and hope im not duplicating this question.can you please tell me Martin is all my money covered up to 35k if i have a fixed rate one year bond under the governments guarantee scheme

Hi Keyboardman,

Welcome to MSE.

Martin's latest thoughts are here:

http://www.moneysavingexpert.com/savings/safe-savings

If your bond is a simple deposit, it should be gilt edged until the government withdraws its NR guarantee; after that it should 99.99 percent safe, in that nobody has practical experience of how long it takes to sort out the mess if a British bank goes belly up. (I have a friend who never got chased for his BCCI credit card debt:rolleyes: - sound of depositors' teeth grinding).

Harry.

gt94sss2

harryhound wrote: »

Perhaps I've got the decimal point in the wrong place, but isn't NR's loan book worth something like 96 billion? That sounds like a lot of money to me.

Yes, that is roughly said to be the size of their loan book but the market capitalisation of Northern Rock is much less at around £550 million (and falling it seems!) which is the figure that counts.

By comparison, the market cap of:

HSBC is £107 billion
Barclays is £40bn
Lloyds is £30bn
RBS is £50 billion

Hence, Northern Rock would be a minor purchase for any of these..

Barclays, contemplating their little Dutch sweetheart deal, wrote to me asking for my permission and I seem to remember they were proposing to punt less than half that 96 billion figure? I was not very keen on the Dutch venture, it smelt a bit of poison pill desperation.

The Barclays deal would have resulted in existing Barclays shareholders only holding only about 52% of shares in the "new Barclays" if the deal had suceeded with 48% of the company going to the Dutch.. - which is a lot more significant.

Regards
Sunil

gt94sss2

Northern Rock and the Treasury said on Tuesday that the government-backed guarantee arranged in mid-September for retail depositors with the troubled mortgage bank would be extended to any new deposits savers make or have made since September 19.


The guarantee would remain in place “during the current instability in the financial markets,” the Treasury said. In lunchtime trading shares in Northern Rock jumped 35¼p or 20 per cent to 207¾p. (from here)

Official announcement

Regards
Sunil

Former_MSE_Dan

Article has been slightly tweaked to match this new announcement

http://www.moneysavingexpert.com/banking/Northern-Rock-Crisis

gt94sss2

The Economic Secretary, Kitty Ussher, today announced that the Government would allow people who during the recent financial market disruption withdrew cash from Individual Savings Accounts (ISAs) held at Northern Rock – and in the process lost their tax advantages – to re-deposit that money into a cash ISA with Northern Rock or any other provider, restoring their tax advantages.

Kitty Ussher said:

“To ensure that Northern Rock ISA savers are not penalised by the financial instability in the market. I can announce today that in these exceptional circumstances, the Government will allow the people affected to re-invest their money into any cash ISA, including Northern Rock’s, and thereby restore their tax advantages.”

Savers wishing to restore their lost cash ISA tax advantage must by 5 April 2008 either:

a) return their funds to a Northern Rock ISA, or
b) obtain from Northern Rock a certificate for the amount of cash ISA savings withdrawn between 13 and 19 September, and present this to a new cash ISA provider when depositing the money.

This announcement applies to funds withdrawn from Northern Rock ISAs between Thursday 13 September and Wednesday 19 September inclusive.

More at http://www.hm-treasury.gov.uk/newsroom_and_speeches/press/2007/press_110_07.cfm

Regards
Sunil

johnc

Hi - I am not sure if this is the right place to post this but I have a Northern Rock Loan and unlike most other savers in Northern Rock I was more curious than ever when the crisis emerged to see what would then happen to my Northern Rock Loan - would I not have to pay it if they went bust? Well since that situation is not going to happen and now they are going to be acquired I am sure any benefit to my Northern Rock Loan is nil!

I am now looking to pay off my loan in advance - should I still do this now or wait for any reason?

Thanks for your help.
John.

dougs

johnc wrote: »

what would then happen to my Northern Rock Loan - would I not have to pay it if they went bust?

you would always have had to repay it even if they had gone bust as the Official Receiver, or Administrators of the failed company, would collect the money in on their behalf.

harryhound

What is more, even if the loan is a mortgage, you have almost certainly signed a clause saying the loan is repayable on demand; so you could find yourself having to to refinance the loan in a hurry and at a higher rate.

F_T_Buyer

gt94sss2 wrote: »

No - no bank or building society saw this credit crunch occurring -some may have foreseen that the sub prime loans in the USA would have problems - thats quite possible but not the side effect of wholesale borrowing generally drying up.

Regards
Sunil

Get real. Many said it was inevitable and predicted it; even the Bank of England warned of this happening. Did those short term traders working at banks, who can only see there next bonus forecast it? No. It wasn't in their interests!

Wholesale borrowing didn't dry up as you imply, it's just the price of finance changed to reflect the unknown risks from risky lending. Many struggled as they built their business models on ever lasting cheap easy money!


This credit crunch has still along way to go, the authorities are still trying to prevent these risky assets coming to market. Once they do, they will set a new price precedent, which will be undoubtedly lower than face value. This will cause more problems as lending institutions won't be able to maintain their Basel reserve requirements, and require even more short term cash which is yet more expensive.

This is what this whole credit crunch is about! No one knows what the value of all those assets are, all they do know is it will be less than face value due to the under estimation of bad debt.