Am I Missing Something With The Sale Of Northern Rock?

[Red C220]

A good question Oldcro. Some more cynical souls have suggested that it was bailed out not because of its systemic importance (it had none) but because it was headquartered in an important area for the party then in government. Perish the thought that a government would spend taxpayers money on such unworthiness.

There's a little more to it than that (there always is right!)

Sentiment plays a large part of why the govt did what it did.

You can trace back the casue of what happened to a decision made by G Brown about being more transparent about what the banks were doing. More specifically that the Bank of England declared at much shorter notice which bank has "borrowed" from the the previous week or so and for how much. (previously reported three months in arrears).

This is basically clearance funds to balance the books, it serves no public interest whatsever and is no value being public knowledge.

What this did was scare the living daylights out of anyone who had money in NR and casued a run - the rest is history.

The bail out was to stabilise the bank and restore the publics perception of NR and that it wasn't going to go bust (which it wasn't).

At this stage the gov didn't have a crystal ball and we're not aware of how many overpaid monkeys in banks had been flinging poo at the fan to see what stuck and what made it through. You couldn't then uno what had been done.

Interestingly on the same day NR went to "borrow" from the BoE, Barclays did the very same thing for larger sums of money. However, Barclays chose to borrow from the ECB at higher interest rates, simply so the amounts required would not be publisied and casue panic and a subsequent devaluation of their shares and value overall.

 

[markjay]

The political argument is clear... had the same government bought and sold NR at a loss, there would have been a justified outcry.

But in this case, the Labour will insist that their decision to buy was good and Osborne's to sell was bad, while Osborne will say exactly the opposite... the losers here are the taxpayers which are none the wiser as to who's wrong and why.

Change of government is a great way to avoid any form of accountability.

 

[grober]

To perhaps get a sense of perspective the on 'paper' loss of between £400m and £650m is actually very close to the estimated £680m our "brief " intervention in Libya cost. There are many more traditional ways of p****ng the taxpayers money up the wall.

 

[ucr]

Am I Missing Something With The Sale Of Northern Rock?

How about the UK tax payer cash of £111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111

 

[timskemp]

liar loans, I mean, self certified mortgages.

For those of us who have been self employed for many years, self cert mortgages were the best way to get a decent home... When my self cert provider went bust I had to remortgage - because all the self certs suddenly became "toxic" I had to remortgage at 7.99% when the base rate was 1.5 and falling...

Most of the Northern building societies would regularly have drinking competitions for senior management. Now, I am not a puritan, but....

I've worked with many a northern business where booze is the driver, they mostly end in tears.

 

[Dryce]

I think this could be Osbournes 'selling the reserves of gold off cheap' moment.

Nah.

We should have kept the gold.

OTOH we want shot of NR.

I suspect that HMG is figuring that if it hangs on to it there will be little benefit. It's difficult for it to be developed under public ownership.

So take it on the chin and get shot of it. If it starts to make money it will start paying taxes. If not then it's no longer HMG's problem.

 

[corned]

One thing is for certain. Incapability Brown is busy wiping the sweat from his brow, and thanking his lucky stars that the electorate ensured he would dodge this particular bullet, and let the real sh1t land in someone else's lap to have to sort out. God bless him.

 

[clever dicky]

I think it wont be long before Branson buys more little islands to call home.

 

[kikkthecat]

Is this the same Northern Rock that managed to post losses of £232 Million last year but still managed to pay out £13 Million in bonuses ?

Daily Telegraph / Northern Rock

I'm beginning to think those people at St. Pauls and those of the Occupy Wall Street groups are on to something. Someone or some group is going to make a lot of money here with the blessing of our government but at the taxpayers expense.

As I'm a financial idiot can I ask a silly question about debt ? If the Governments have no money and need to borrow (I assume from the banks) and the banks have no money and need to be bailed out by governments where the hell is all the money coming from and who do we owe it to ?

 

[MercFanUk]

As I'm a financial idiot can I ask a silly question about debt ? If the Governments have no money and need to borrow (I assume from the banks) and the banks have no money and need to be bailed out by governments where the hell is all the money coming from and who do we owe it to ?

Other countries, multi country funds and multinational banks. That's the reason the IMF and Germany have been in the news so much lately with all the current collapsing of economies.

 

[dinoy]

also does the deal include the bad north rock bank, or the just bought the cream and saddled with and bad debt

 

[Dryce]

also does the deal include the bad north rock bank, or the just bought the cream and saddled with and bad debt

Good question. As always the media aren't very good on the ferreting the detail.

It looks like it's Virgin Money Holdings that is putting the headline on the deal. But behind that the money is coming from other investment sources as well as Virgin Group.

There are also other sums involved. I heard one headline on radio that said the bank had been sold for £400 million (I think somebody mixed up headline loss). Also £600 million. Then there's the number £747 million bandies about (747 - coincidental with the aircraft designation given it's virgin - hmmmm). Finally there is a total figure of about £1 billion based on the deal paying HMG additional cash - some of it downstream.

Further complicating things HMG has other money tied up in the bank in loans - and it may well be that they are expecting to have that repaid more quickly through this deal.

The deal presumably also means that if the bank continues to make a loss for another few years that HMG isn't coughing up on that either.

A bit more transparency from HMG and some intelligence as opposed to screaming and yelling headlines by the media would help taxpayers understand the real value of this deal.

 

[davidjpowell]

A bit more transparency from HMG and some intelligence as opposed to screaming and yelling headlines by the media would help taxpayers understand the real value of this deal.

Good luck! I can understand why the staff were happy that they had been sold out of government control...

 

[davethemus]

As I'm a financial idiot can I ask a silly question about debt ? If the Governments have no money and need to borrow (I assume from the banks) and the banks have no money and need to be bailed out by governments where the hell is all the money coming from and who do we owe it to ?

the tax payer

 

[scottishman2]

The fundamental problem that Northern Rock faced before, and which led it to rely upon a very flawed business model, was that its deposit base and local franchise was insufficient to let it grow to match the ambitions of its management.

Amended slightly

The fundamental problem that Northern Rock faced before, and which led it to rely upon a very flawed business model, was that its deposit base and local franchise was insufficient to let it grow to match the BONUS ambitions of its management.

 

[davidjpowell]

Is this the same Northern Rock that managed to post losses of £232 Million last year but still managed to pay out £13 Million in bonuses ?

I don't see a problem with the bonuses. They will be spread widely, and ultimately the job market is a free economy. You can cut peoples pay, but they will then look for better opportunities.

What you end up with is the dross and the losses worsen.

I suspect that the losses are worse because of the state control, and the inaction is the order of the day. If they can innovate and rebuild the business, it's going to be in private hands.

I do think the sale is a good thing. It closes the book and moves on.

 

[markjay]

The Telegraph today quoted Ed Miliband as saying that selling NR in this difficult economic conditions was a bad decision, and George Osborne as replaying that this government has been dealt a very bad hand by Labour, and was simply trying to make the best out of a bad situation...

But for Osborne and Cameron this is a win because selling government-owned assets fits with the Conservatives' view of small government and big private business.

I suspect that they will find themselves back within their comfort zone when the government no longer owns any more white elephants...

 

[crockers]

would it not have been better to let northern rock go to the wall and just guarantee the customers deposits.
I read somewhere that when it was nationalised it was split into 2 parts, obviously the part that has been sold today doesn't have any 'toxic-assets'. The part that does have the toxic-assets owes us £40 billion.

I believe the "bad bank" actually started to make money.

One thing is for certain. Incapability Brown is busy wiping the sweat from his brow, and thanking his lucky stars that the electorate ensured he would dodge this particular bullet, and let the real sh1t land in someone else's lap to have to sort out. God bless him.

This one I have trouble agreeing with. What was Brown to do? Let NR fail? If he did there would be a run on all banks in the UK and ALL BANKS don't hold enough cash to pay out on a run. This would / could have spread to other countries and to stop this the cost to the exchequer would have been far greater than had been at that time.

I don't rate Brown - but credit where credit is due - he did actually stop a run on the banks that would have put us into a depression far worse than that of the 1930's.

Not sure Osborne is any better. The disaster for the Weimar Republic was NOT massive inflation, but rather the draconian austerity measures that were imposed by the then finance minister in 1929 or thereabouts.

Lets hope that this time we have a balanced approach.

 

[Sp!ke]

apparently, at the time, the country was only hours away from all cash machines being shut down not just NR ones but all banks in the UK.

 

[Dryce]

I don't see a problem with the bonuses. They will be spread widely, and ultimately the job market is a free economy. You can cut peoples pay, but they will then look for better opportunities.

What you end up with is the dross and the losses worsen.

Fine in principal.

In practice an awful lot of 'bonus' seems to be awarded for mediocrity and failure.

Moreover in the finance sector it's become a delusion of alleged personal value creating and transacting funny money to make more funny money while declaring that you need the brightest and best on the planet.

There was a rather cynical documentary movie on called The Flaw on More 4 a few days back. They had a Goldman Sachs man telling us how they had to pay to hire the best and then cut to a behavioural pyschologist who said that if you pay anybody a huge amount of money that they'd be justifying themselves as being worth it within days.

And IME that is entirely correct. I've seen people at various levels - lowest to highest - and it doesn't just become the idea that you're worth X but with many it becomes an entitlement.