Question about Northern Rock

pamaris

I have heard it said by many that Northern Rock actually has a solid balance book, and is a good company. If they are really so great and solvent why will no one touch them as far as buyouts go?

You would think that a large bank or private equity company would be able to see through the media haze and see what a great balance book they have, if indeed they do have one.

Just wondering.

m00m00

it's largely because their business model relies on external funding on the capital markets, which has suddenly got more expensive this summer. This makes it a lot harder for them to get new business, as they will be much less competitive, and it also means as they are less competitive more of their existing customers will move away.

pamaris

Right so it is their business model that is flawed, not their balance book. Makes sense. I suppose no one is expecting cheap easy funding from the money markets to return anytime soon.

If what you say is correct, I guess NR will simply fizzle out.

Curv

There is a lot of 'feasibility' work going on behind the scenes... no one buys an organisation the size of NR without a serious amount of research and planning.

Buy-outs generally take months/years to complete so it's a bit soon to be speculating about the veracity of comments regarding how sound the business is purely on the strength of the time it's taken so far.

And it's generally difficult to find out who is seriously involved in these transactions as it's so commercially sensitive that most of the feasibility work is done with a degree of secrecy.

Someone will buy NR, I'm sure.

Debt_Free_Chick

Virgin Money and at least one private equity firm (backed by JP Morgan) are rumoured to be interested

Curv

Debt_Free_Chick wrote: »

Virgin Money and at least one private equity firm (backed by JP Morgan) are rumoured to be interested

Branson can't keep his self-promoting, publicity-seeking trap shut

SquatNow

No-one wants it as a running company, but all the assets (mortgages) will be sold off. If you take the whole company on your will have a shed load of staff to pay redundancy to. The only benefit of buying a running company is you get to keep the companies good name... and NR's name is worth jack.

Other banks are sniffing around to get a look at the books and:
A) See which assets are worth buying at aucion, and for how much.
See how much the assets are worth so they can estimate how much their own assets are worth.

It's a bit like the £2bn SAIC bid for MG-Rover... they were just having a look around, casing the joint, seeing which parts were worth buying, whilst blocking any other rescue bids in the process and ensure the company would got to the wall.

Biggie

JC Flowers also intreasted has a track record of turning these things around.

They have many mortgages which at the present time is an assert but on the other had it has liablties such as the BOE loan. Not sure what it's worth but I know all the initial take over bids are just looking for a bargin.

theGrinch

they were in serious talks with a high street bank prior to the run on the bank. given the complexity of the issue, there just wasnt time to thrash something out. had this gone through I sense all the shenanigans would have been avoided.

some members of the board appeared in front of the treasury committee last tuesday. you can see the questioning at the parliament archive. its about 2 hours though!

Melissa177

m00m00 wrote: »

it's largely because their business model relies on external funding on the capital markets, which has suddenly got more expensive this summer. This makes it a lot harder for them to get new business, as they will be much less competitive, and it also means as they are less competitive more of their existing customers will move away.

And the problem over the summer was that NO-ONE would lend to them. Absolutely no-one. THey claim to have stress-tested their model, but they didn't do the one critical stress test - what if they couldn't borrow from the markets. According to Sir Derek Wanless "that would have been impossible".

Well, guess what. It wasn't.

Rumours about NRK had been floating around the City for ages. NRK was a running joke amongst my friends in the City - not because they had a rotten mortgage book (they don't), but because they were known as the lender which would dole out the cash to all and sundry.

These rumours made it impossible for NRK to obtain any money. Hence turning to the BoE.

theGrinch

the NR modus operandi was public knowledge, known by anyone that wanted to find out including sharedholders, savers, mortgage holders, the city, the government, BoE, FSA (the tripartite). there is no secret there.

I seemed to recall Barclays had to call for a facility this summer.

I just hope a commercial solution is found, which does not involved Mr Branson. His two most "successful" businesses have been the airline and railway - with high barriers to entry and protection. Those businesses with competitors are not as successful as one might think.