Northern Rock - 23bn borrowed so far and rising...

[Deleted User]

I would hope so !!!!!!, lets see if the banks can brown envelope their way out of this mess.

I hope not the government seem pretty pi*sed off darling babys even made this known to the press. But its quite hard to regulate as were do you call the line, 5 times proven income mandated perhaps? Insurance mandated on income that may be at risk ie BTL, self cert? Credit limit of 90% asset values maximum? 50% of salary per annum max unsecured debt?

They definatly need to call all the brokers and bankers to account and strip them of their assets, money and investments for those that cant prove that every client provided hard evidence that they could afford teh loan, and afford it at higher interest rates. They need to be (merryl) lynched lol hehe

In a supposed "low inflation" low money circ society how is it possible for HPI to be 10-20% per annum with out the pyramid selling of loans.

Rick62

Would NR collapsing really have caused a UK banking crisis? NR is very small, even in UK terms and is very much a one trick pony - Uk mortgages.

Had it been allowed to collapse I think the market would pretty much have shrugged and taken the attitude that their business model and risk management were dreadfully poor (specifically lending long, borrowing short).

More important, I suggest, to the government, is confidence in the property market (NR were about 15% of lending) and the depositors maybe losing some of their deposits and the 400,000 small shareholders - could Labour afford to upset them (mostly who received shares on demutilisation) particularly when they were planning (at the time) to call an election?

free4440273

The bailout does indeed set a dangerous precedent; and more and more people (savers) are losing confidence; who can blame them?

Generali

Rick62 wrote: »

Would NR collapsing really have caused a UK banking crisis? NR is very small, even in UK terms and is very much a one trick pony - Uk mortgages.

Had it been allowed to collapse I think the market would pretty much have shrugged and taken the attitude that their business model and risk management were dreadfully poor (specifically lending long, borrowing short).

Hi Rick62,

When it comes to bank runs you don't want to use terms like 'I think' and 'pretty much'.

According to my pretty shoddy back of envelope calculations, max loss to the UK taxpayer/BoE is £200 million odd and that's making some real worst case assumptions-50% property price falls and a 3% default rate aren't in too many 'sane' peoples' predictions.

A run on and collapse of NRK, A&L, B&B and possibly Barclays would cost the country a sight more than that in lost growth alone. That's without the massive destruction of wealth.

You and many others (including a lot of economics writers that really should know better) are missing the fundamental point:

This is a regulatory failure and things should never have got to this point. However, we start from here, not from where we want to start from. From where we are now, do you honestly believe that the best thing to do is allow a series of bank runs fuelled by rumour? If so, you should read up on banking crises (especially 1907 and 1930s US - compare and contrast).

WTF?_2

Rick62 wrote: »

Would NR collapsing really have caused a UK banking crisis? NR is very small, even in UK terms and is very much a one trick pony - Uk mortgages.

Had it been allowed to collapse I think the market would pretty much have shrugged and taken the attitude that their business model and risk management were dreadfully poor (specifically lending long, borrowing short).

The problem was that there was a run on the bank - if it had been seen to collapse as a result of that that then most likely there would also have been runs on Bradford and Bingley and Alliance and Leicester.

Having three prominent financial institutions go under would have sent the banking system into turmoil. People would lose their faith in having money in the bank and almost any bank could find itself the victim of a run. We could even have seen an Argentinian style banking collapse in the worst case.

(Pretty much no bank can survive a run where depositors take all their money out, irrespective of their financial condition. The banking system relies upon people having faith in it.)

Since the government 'guaranteed' the solvency of Northern Rock, it has little option now but to continue to fund their dysfunctional operation. Ideally they want it sold to a third party but no-one will be willing to take on the business without the 'endless funding' guarantee from the bank of England continuing to apply.

[Deleted User]

Rick62 wrote: »

Would NR collapsing really have caused a UK banking crisis?

Too late it already has, the effects will take at least 3 years to be fully known. First stage denial, everything seems ok right?

Its not just NRK that has been playing poker and photocopying extra cards along the way. Loads of European banks have been copying the yanks pyramid scheme.

Generali

Yant1 wrote: »

Too late it already has, the effects will take at least 3 years to be fully known. First stage denial, everything seems ok right?

Its not just NRK that has been playing poker and photocopying extra cards along the way. Loads of European banks have been copying the yanks pyramid scheme.

Not really in my understanding of such things (Big Bank my former employer was a big seller of securitised debt). NRK is pretty unusual among European banks in that it relied to such a great extent on securitising debt (although interestingly, to me at least, £7bio of the £11bio of Nationwide's mortgage book has been packaged up and sold on - as far as I can tell at least as I'm not that great at reading balance sheets).

The bigger problem that European banks have is that they've been buying the infernal stuff. AFAIK, mostly the CDOs, MBSs and rest of the Alphabet Soup has been kept off balance sheet so nobody really knows who's holding it and what their losses are. Even worse, a lot of hedge funds have bought packaged debt on tick and so reletively small falls in it's value will wipe out the funds. A big fall will mean the Prime Broker (the bank that's lent the hedge fund the money to buy the debt) will take a hit too.

If you're interested (and still reading) the most likely place you'll be able to see any losses surface is a drop in dividend cover (IMO)- that is the cash and liquid assets that are available to cover dividends. I haven't got the figures to hand but if you want to make a few quid I'd recomend buying shares in A&L and B&B if the dividend cover is 2 or thereabouts. Each is predicted to pay a whopping yield. At least you can be pretty sure that those guys have been sellers and not buyers of MBSs etc.

DYOR of course.

dolce_vita

Generali wrote: »

Not really in my understanding of such things (Big Bank my former employer was a big seller of securitised debt). NRK is pretty unusual among European banks in that it relied to such a great extent on securitising debt (although interestingly, to me at least, £7bio of the £11bio of Nationwide's mortgage book has been packaged up and sold on - as far as I can tell at least as I'm not that great at reading balance sheets).

The bigger problem that European banks have is that they've been buying the infernal stuff. AFAIK, mostly the CDOs, MBSs and rest of the Alphabet Soup has been kept off balance sheet so nobody really knows who's holding it and what their losses are. Even worse, a lot of hedge funds have bought packaged debt on tick and so reletively small falls in it's value will wipe out the funds. A big fall will mean the Prime Broker (the bank that's lent the hedge fund the money to buy the debt) will take a hit too.

If you're interested (and still reading) the most likely place you'll be able to see any losses surface is a drop in dividend cover (IMO)- that is the cash and liquid assets that are available to cover dividends. I haven't got the figures to hand but if you want to make a few quid I'd recomend buying shares in A&L and B&B if the dividend cover is 2 or thereabouts. Each is predicted to pay a whopping yield. At least you can be pretty sure that those guys have been sellers and not buyers of MBSs etc.

DYOR of course.

Another top post from "the inside" so to speak.

I've no doubt most of it is true (even if I don't understand the jargon)



The thing is though Gen, sometimes one doesn't need experts to tell that something is "not right".

Like you "don't need a weatherman to know which way the wind blows"

Even to the layman, it's almost tangible- in that you can feel that there's a whole pile of !!!!!! waiting to blow.

ManAtHome

Generali wrote: »

The £40bio exposure isn't really correct though - the only way that the BoE will be footing that bill is if all NRK's debtors default in full and their security (houses for the most part) has nil value.

Worst case scenario? Say 3% default rate on the loan book and a 50% fall in house prices. The loan book is about £15bio max so max possible loss would be £225,000,000

Thought their loan book was around 120 billion - they've already borrowed more than 15...

Generali

ManAtHome wrote: »

Thought their loan book was around 120 billion - they've already borrowed more than 15...

http://news.bbc.co.uk/1/hi/business/6994099.stm

Ok, fair enough, total assets (lending) = £113,000,000,000.

Still, with very pessimistic numbers, max total loss would be £1,695,000,000. So far, total loss = £0.