Rock - the numbers
Northern Rock鈥檚 depositors are nervous. That鈥檚 quite understandable. Some 拢1bn was withdrawn by customers yesterday, much of it from bank branches.
That represents a big chunk of the 拢5.6bn held in what Northern Rock calls branch accounts (as of the bank鈥檚 June 30 balance sheet).
There is a further 拢9.9bn in postal accounts 鈥 and presumably Northern Rock will be learning from today鈥檚 mailbag the scale of withdrawals from these accounts.
Then there is 拢4bn in internet accounts.
Holders of these have been anxiously emailing me saying that it has been almost impossible to log-on to their savings accounts over the past 24 hours, so 鈥 again 鈥 it is unclear what scale of transfer there has yet been out of these.
But just how worried should Northern Rock鈥檚 depositors actually be?
Well there are a number of different ways of answering that.
I am going to start by looking at the support the Bank of England has promised to provide and seeing whether it would be enough to pay out every single depositor, in the unlikely worst case that they all decided to withdraw their cash.
This is not as straightforward as you might expect, because the Bank has given only limited details of the emergency lending facility it is providing.
What I have learned is that the bank is lending against the collateral of mortgages made by Northern Rock.
However, it is not prepared to lend Northern Rock 拢1 for every 拢1 of mortgage pledged to it as security.
My understanding is that it wants more than 拢105p of collateral for each 拢1 it lends.
Now, Northern Rock鈥檚 balance sheet of June 30 this year shows that it has 拢31bn of residential property loans not subject to securitisation 鈥 which in theory are available to be pledged to the Bank.
But a further note to the accounts shows that 拢10.2bn of these have already been pledged, to providers of funds via financial instruments called covered bonds.
So there鈥檚 only 拢21bn of these straightforward mortgages available to the Rock as possible security for loans from the Bank of England. At a 5 per cent discount, the Bank would probably lend just under 拢20bn against these.
That鈥檚 not very encouraging, because retail deposits 鈥 which include the branch deposits, internet accounts and so on that I have already mentioned 鈥 actually total 拢24bn.
Also, there is a further 拢5.8bn described as 鈥渙ther customer accounts鈥. And there are 鈥渄eposits by banks鈥 of 拢3.7bn.
So total deposits are nudging 拢34bn 鈥 which on the face of it is a bit more than assets that could in effect be swapped for hard cash at the Bank of England.
So does the Rock have other assets it could pledge? Well it has 拢6bn of residential buy-to-let loans not subject to securitisation and therefore useable as collateral.
And it has 拢7.8bn of unsecured loans also not subject to securitisation.
Buy-to-let loans and unsecured loans are always seen as lower quality than residential mortgages. So if the Bank is prepared to accept them as security at all, it would probably demand a much greater discount to asset-value than 5 per cent when lending against these.
So I am going to make the heroic assumption that Northern Rock could probably borrower a further 拢11bn or so against its buy-to-let and unsecured book.
That gives us a running total of something like 拢30bn that could be obtained from the Bank, if all this stuff was pledged to it. Which is still not enough to pay out every single depositor in the highly unlikely meltdown case.
Now its June 30 balance sheet also shows that it has other higher quality assets 鈥 but in the past few weeks some of these will have been liquidated or pledged as Northern Rock endeavoured to weather the financial turmoil and looked for ways to finance its lending.
But for what its worth, as of June 30 Northern Rock had securities 鈥渁vailable for sale鈥 totalling 拢8bn and loans to other banks of just under 拢7bn.
Bottom line is that I estimate that Northern Rock has just about sufficient free assets to raise funds in the extreme and very unlikely case that every single one of its depositors wanted its money back.
Which helps to explain why the Financial Services Authority has described Northern Rock as solvent.
But on the basis at which the Bank of England is prepared to lend, depositors鈥 funds seem to be only just about covered by loans that could be provided by the Bank.
That said, there is a bigger political reason why Northern Rock may well now be one of the safest banks in the world.
Here the important point is that the Financial Services Authority has declared Northern Rock to be basically sound, the victim of temporary and exceptional maket conditions.
And the Chancellor, Alistair Darling, has very publicly endorsed the FSA鈥檚 analysis and said there is no reason for Northern Rock鈥檚 depositors to panic.
So in the unlikely event that a black hole did emerge at Northern Rock, the Government would be under enormous moral pressure to pay out 100 pence in the pound to Northern鈥檚 retail depositors, as opposed to the less generous terms available under the official deposit protection scheme.
UPDATE SEPT 15 16:00 It turns out that withdrawals from the website represented the biggest flight out of Northern Rock on Friday, in spite of the technical problems experienced by many holders of online accounts. Which is predictable, in that it is so much less hassle to go online than to queue outside (so long as you are actually able to log on). In an age when funds can be transferred with the click of a mouse, it is even harder for a bank to hang on to funds after any kind of knock to its reputation.
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I'm confused - the Interim Results of Northern Rock reports $113.5 billion in 'statuary assets' and this number has been quoted by 成人论坛 reporters on New 24 - this is clearly much greater than the $24 billion retail deposits - hence 'no need for panic'. Are you suggesting that much of these assets have already been pledged and therefore cannot be borrowed against from the B of E?
Good analysis... I wonder how the other building societies fare under this hard-headed scruitiny.
Alliance and Leicester ?
Bradford and Bingley ?
Birmingham midshires ?
Where can we find out what shape these banks are in...
I agree that the political pressures are such that all deposits will be honoured in extremis. However, all the Internet based models will now have to be reconsidered in the light of NR depositors inability to access their on-line accounts . UK depositors are going to need some comfort that makes it worth their while putting more than 拢35,000 in any single account.
It would have been very helpful and more professional had Robert Peston written something similar yesterday rather than his over enthusiastic article. This would have avoided the panic {that I and many others who have expressed views}that his article clearly created and caused many people including senior citizens much distress. A lesson maybe Mr Peston for the future??
So if everyone in the NR bank did panic, and pulled their savings I bet NR does not have all that cash to stump up, even with BoE loan!
Who is the BoE really helping here, the NR customers, NR or it's self to all the NR assets if it all goes Pete Tong...
And yes who is next?
As a concerned depositor with Northern Rock, is there any indication as to how 'short' is the short-term loan from the Bank of England?
Having done my 'apprenticeship' in one of the big banks and spent a good deal of time in the Head Office all deposit taking institutions used to complete a monthly liquidy return to the Bank of England (BoE) and the Financial Services Authority (FSA). In the 'old' days all banks only keep 6% of 'call deposits'in reverves with the BOE and a lower percentage on 'term deposits'.
In the event of a 'run' on a bank the first call is to the lender of last resort ... this time its the BOE as no bridging finance is available via the interbank market.
To keep this blog short a simple calculation will show that of the alleged 拢24billion of depositors cash, Northern Rock (NR) may have only had +/- 拢1.44 bn on statutory deposit. Given that withdrawals of 拢1bn were allegedly paid out yesterday, then there is not much near liquidy left. The BOE will be compelled to take lower or poor quality assets to secure the bridging finance and then need to be assured that NR remains solvent and can re-purchase the 'carry'.
As a first gambit it does look as though its going to get worse ... and then, who knows...!!
As a concerned depositor with Northern Rock, is there any indication as to how 'short' is the short-term loan from the Bank of England?
Surely the main problem here is that Northern Rock cannot find any money on the market to finance its mortgage business.
In order to make money, it needs to sell money (i.e. mortgages & loans) at a higher interest rate than it borrowed the money at. They can't do this without the capital they normally fund from the market.
There might be a real problem if people start defaulting on their motgages because they think the company is going under!
I have equity release with Northern Rock. This is a life time mortgage that had a lump sum and pays out a sum every month. Is this money under pressure? Am I likley to receive this under the current circumstances??
The 105% is not an excessive collateral margin for good quality assets. It is also extremely unlikely that all of the savers assets will be withdrawn - although I would not be surprised if by the end of next week more than 50% had been withdrawn.
The interesting question is whether the bank can remain profitable. Right now it is swapping a vast amount of cheap funding for very expensive funding. Something has to give - that means putting up the cost of their mortgages. Unfortunately whilst LIBOR is heading up, the base rate isn't. Also - mortgage rates are heading in the opposite direction. If they are not competitive then they will also face a rash of mortgage redemptions.
Another key piece of information is what their forward book of funding looks like. One of the recent pieces I read indicated that little of their funding (from other banks) was termed beyond three years. They will struggle to renew these lines given their current state, so they will need to pull a continuous stream of additional funding from the BoE creating a vicious circle. This will be offset to some degree by the mortgage redemptions mentioned above.
I think NR will not go bust, but it will shrink rapidly over the next few months - hence the massive mark down on the share price yesterday.
The BoE is kidding itself if it thinks that this is a short term exercise. Very few banks will be willing to fund NR until the full picture becomes clear - and even then I expect it to be expensive for NR.
As such, the most likely scenario is that the BoE will manage an orderly sale of the bank to a larger organization early in the new year once it is past the immediate crisis The purchasing bank will need a strong balance sheet, but this actually represents quite a good opportunity as the mortgage book is of a high quality (no sub-prime). Wait and watch.
So, if Northern Rock is fundamentally sound and this is just a short-term funding concern that will start to go away once the markets rediscover their rationality after the Fed cuts rates next week, should this be viewed as a buying opportunity for NRK stock?
So basically the people in the queues are right - get it out while you can because we dont really know what will happen.
I liked the analysis.
However, in this situation the words used particularly by the FSA and the Bank of England are important. If either of these institutions or indeed the Northern Rock first used the term "emergency funding" then I question their judgement. In the mind of the public the often misused "emergency" implies an as yet unresolved problem which presumably was not what the Bank as the lender of last resort was trying to achieve.
I am a postal saver with the Northern Rock so the matter is of some importance to me and I would be caught by the compensation "cap" should the worse happen. I will for the moment trust the regulatory authority statements. However,if indeed despite all the assurances from the FSA,BBA and the Chancellor et al something did go wrong the subsequent "panic" would create huge problems in the financial market as investors wondered about the rest of the banking system,there would also be a siognificant political price.
I liked the analysis.
However, in this situation the words used particularly by the FSA and the Bank of England are important. If either of these institutions or indeed the Northern Rock first used the term "emergency funding" then I question their judgement. In the mind of the public the often misused "emergency" implies an as yet unresolved problem which presumably was not what the Bank as the lender of last resort was trying to achieve.
I am a postal saver with the Northern Rock so the matter is of some importance to me and I would be caught by the compensation "cap" should the worse happen. I will for the moment trust the regulatory authority statements. However,if indeed despite all the assurances from the FSA,BBA and the Chancellor et al something did go wrong the subsequent "panic" would create huge problems in the financial market as investors wondered about the rest of the banking system,there would also be a siognificant political price.
Thank you for this comprehensive and level-headed analysis. It's a shame the rest of the media (including the 成人论坛) don't take such a calm and dispassionate approach, instead of encouraging panic which is in absolutely no-one's interest.
There is no doubt that in this country the 成人论坛 has the freedom to reveal such news as the arrangement between Northern Rock and the Bank of England. But freedom comes with responsibility and you must have known that this news would create panic amongst investors, particularly as the news these days is always over sensationalised. I suspect that very few of NR's investors has your understanding of the situation and that a run on the bank was inevitable. Do you think it was socially responsible to release this story? Or, perhaps the 成人论坛 believes itself to be above such considerations as social responsibility?
I agree with Deagle's post, but would extend it - what about other financial institutions?
While the interbank situation has left Northern Rock (and others) short of the ability to borrow, they weren't directly exposed to Collateralised Debt. When will we know the real exposure of, say, Barclays?
And what happens if we see a big drop in property-based asset values here?
If the BoE really wanted to stop the run on deposits at Rock then the would guarantee these deposits (for perhaps 6 months) as well as providing liquidity. It seems unnecessary given the statements made but I doubt if the average depositor has, at the end of the day, as much faith in the Treasurer's statement when the downside - however remote - is they lose their life savings.
Mortgage rates have been too low for too long. The banks and building societies must now raise their lending charges to more realistic rates. This commonsense action will rightly protect their investors.
It's about time we had some sensible analysis to counter the mass hysteria surrounding Northern Rock.
In view of the unthinkable political, financial and economic repercussions of the Bank of England failing to provide Northern Rock with sufficient liquidity to get it through its current problems, it is perfectly obvious that savers' money is not at risk.
At least not unless you think that the BoE is about to fail, in which case even keeping the money under your mattress is not going to protect it. Clearly the BoE is not going to fail, so there really is no need to worry.
Unfortunately, the lack of intelligent analysis in most of the press and on TV - and the unfortunate tendency to conduct interviews with 'the man/woman in the street' rather than people who actually know what they're taking about - doesn't help.
I quite agree that the government will be not just morally, but may be legally obliged to give 100p to the pound to every depositor in the worst case scenario. Such a public backing can have its pitfalls.
Robert Peston's analysis is a bit pessimistic. He includes in the deposits, amounts due to other banks etc. In the assets, he excludes mortgages which have been pledged as security.
If NR has to repay what it owes to other banks, they will have to release the pledges and the assets can be pledged to the BoE.
Sorry to disagree with post 20 (John W)....but the Govt has been equivocal (at best) in underwriting past financial problems e.g. BCCI, Equitable, Marconi, Ferranti and bust final salay pensions schemes.
I don't think that the Govt will set a new precedent by behaving differently here. So people DO need to take the current compensation scheme's at face value (esp. when the consequences are severe i.e. potential loss of a substantial chunk of life savings).
The exposure of other banks to wholesale market was discussed in the telgraph on 17th August - it is still on their website if anyone wants to check the details.
I am happy that the funds I have deposited in NR are safe in the long term. I am, however, concerned that I have not been able to access my internet Trackers account since Thursday. In practice this means that my funds has been frozen. I hope this problem will be resolved soon, but I have serious doubs as tho whether I will keep my finds in NR once I can access my account.
Well I am a NR customer but on the borrowing end of things, so to me its business as usual. As for the panic, I think the whole situation has been very badly handled. They would have been far better giving them the funding without making it public knowledge, but subject to terms such as making sure it is fully disclosed within say six months. That way the problems with the market would probably have come to an end, or at least improved slightly. Also at the same time NR customers would not be running to withdraw cash and thus probably doing NR and the BoE more harm than good. Another term should have been that the CEO and others step down within a few months after the official announcement.
Its a classic example of British hysteria!
There is a fundamental problem here. We just can't trust the government, especially the Treasury, to deal with the nations finances in a "moral" fashion. Pensions, War compensation, expensive drug treatments...the list goes on. At the end of the day there are no guarantees. Governments do what they have to and no more. Morality doesn't enter into it.
The masses of withdrawals here are as much to do with the media's presentation of this issue as any real problem faced by the Rock.
How can people not panic when articles are produced entitled 'What if Northern Rock goes bust?', despite all reassurances that the Northern Rock is solvent.
I think the 成人论坛 and other media agencies hold a lot of responsibility for the mass withdrawals and hysteria witnessed by the bank's customers.
I bought shares in the Northern Rock yesterday and I'm sticking with them!
I remember a couple years back with Refco, which was involved in an accounting scandal. At the end of the day, the company remained strong but the lack of confidence and rush of investors to the exit, collapsed the firm.
A reasoned analysis, but please for a moment forget the sums.
The BBA state that;
"Northern Rock is a sound and safe bank and there is absolutely no reason for either mortgage customers or savers to worry"
Really? Of course they would say that wouldn't they? It's clear to me that a sound and safe business does not need emergency bailouts from the BoE.
The big concern now should be the basic issue of customer confidence, which I would wager is now non existent. This will most likely remain so, not for the short term, but for the foreseeable future.
No new business and the loss of existing customers? HMMMMM?
The NR problem is temporary and has a number of solutions, that is what the experts agree.
What concerns me is the psyche of the UK financial institutions and of many UK people that have contributed in part to this NR situation.
It is the 'in thing' for many people to be continuously borrowing, speculating and bosting about their gains on 2nd or 3rd houses whilst living in 6/8 bedroom homes as a 2 person family for more financial gain.
In the absence of effective government controls the financial institutions have responded to this excessive greed and furthermore, if the public can borrow cheap money to fund a lifestyle beyond their employment earnings and speculate as well then they feel good with this 10 years of useless government.
The destuction of the company pensions by the Brown government and the failure to provide a reasonable level of a state pension forces the public to find future life security in the property market.
But when the UK property prices have to adjust to reality caused by more realistic lending rates, the incresed supply of houses and global money supply then many people are in big trouble.
Why many of our hard working young people not able to afford the deposit on a home is a consequence of this borrow, buy and sell greed of others.
How we can change the way UK society thinks and behaves with property and money will be essential if we are to remain a decent place to live in.
Any other ideas anyone?
What I still fail to understand in all of this is, given NR's dependance on the capital markets to finance it's current and future loans, and the fact that even before NR suffered the worst-case reputation damage it's suffering now it couldn't raise the money it required, who on earth can it be considered a viable business?
I strikes me as being about as viable as an in-car MiniDisc player - there's nothing wrong with the item itself, but it's almost impossible to get hold of stuff needed to make it work.
Great article - please for the sake of the economy and these poor souls outside branches, can you lead with this angle on the main new site and not rubbish like:
"Rush on Northern Rock continues"
"What if Northern Rock goes bust?"
"Northern Rock: Are you worried?"
Those are headlines that wouldn't be out of place in the Sun or any other tabloid. Perhaps the 成人论坛 should just go the whole hog and run with:
"Northern Wreak - Havoc for Britian. Asylumn seekers and EU fat cats blamed. Bring back the death penalty for evil Northern Rock Shylocks. Learn about the shocking connection to Diana!"
Too many people in this country are entirely distrustful of the entire financial system, mostly born out of understandable ignorance. It is easy enough to understand the old approach of lending what your savers deposits, but commercial paper, CDOs, and the modern financial system are so far out of their zone of comprehension that for most people the only conclusion that they are capable of reaching is that the whole thing has been perfectly designed to rip them off.
That the 成人论坛 has adopted such a populist approach to this subject when people really need to be informed and reassured is a dereliction of duty in my opinion.
Have customers actually stop to think "am I putting my funds into another bank which is currently caught in the same situation", the press statements have really only surrounded Northern Rock and makes it look like this is the only bank caught in the current situation, however it appears that this crisis is affecting all banks.
Who will be the next bank to make it public and face more panic and mad rushes?
This analysis is basically non-sense. It doesn't matter how much the collateral is worth. The BoE needs to guarantee ALL deposits, and they need to shout this fact from the roof tops. Heel-dragging and bickering about pence in the pound is exactly what makes people nervous. Mervyn is failing in his job by not appearing on TV screens 24/7 and explaining that regardless how many people try to take out their deposits, he will provide the liquidity. In Bernanke's words, they will drop cash from helicopters if necessary.
Depositor insurance and lending of last resort is a fundamental principal of financial stability, but it doesn't work if people don't know about it.
Every so often the English, {and Northern Rock is essentially an English business} centre a wider complaint on a narrower issue. Think Poll Tax revolts and Thatcherism. The relatively older, financially modestly comfortable Northern Rock investors find themselves threatened by doubt about pension funds, doubt about the returns on insurence policies, inflation experience greater than official statistics,and a housing market that has lost touch with reality.They perceive the winners in this economy to be a new rentier class of Buy-to-Letters, using their money, teenage property developers, using their money, and a management class, using their money to pay themselves handsomely. I suggest that many investors are uncomfortable with all this. When the circumstances arose to protest about it, they did and have taken their money home. Good on them.
This is a well balanced report. Unfortunately much of the rest of the media including the 成人论坛 are hyping the hysteria that may cause very real and long term damage to the rest of the UK economy. We need more of this kind of balance and less of the silly headlines and poorly thought out speculation.
Well done
The problem here - to a large extent - is that no one believes the Government and their official "dont worry" line. Think back to:- Iraq has WMDs - honest, Inflation below 2% - yeah right, Chancellor has met his golden rule - what bo****ks. This Government (and their chums) have about as much cerdibility as the old Soviet media's bulletins re tractor production figures. Get your money out - quickly - and buy gold soverigns. For the forseeable future they are the only safe bet.
Sometimes panic is self-fulfilling. This would be a pity. NR is a sound business and is backed by the Bank of England and the government. So it's probably the safest place for your money at presnet.
It is perfectly possible to log on and do business - whethre funds in or out - just takes a few extra attempts. The lending model looks pretty sound. Wouldn't it be a shame if the panic among some retail savers were to create a tipping point? I am curious, where are people putting the funds they take out?
I gained access to my on-line account at 8am on Saturday 15th - a bit slow but it did actually work!
To me it seems a logical decision to take money out of Northern Rock. If your money is at higher risk than at other banks, then you should expect a higher return for this risk. If this is not the case, then surely you should move it elsewhere, regardless of whether the bank is a going concern or not.
I think there seems three levels of this panic based on the people's understanding of finance and risk / reward (and bank runs).
It would also be interesting to know what the government will do with the collateral if Northern Bank did need to be broken up. Surely the BoE should only lend on what it could secure in the marketplace for this debt. Are Northern Rock mortgages really worth 拢1 per 拢1.05? Why won't anybody else lend on this security? The ABX indices in the US suggest their mortgages definately aren't, is the situation massively better in the UK (and even if so are there enough people who actually believe this)?
Also if the BoE was left with these mortgages, would it be in a fire-sale situation. How would it ensure even a fair price, as purchasers would presumably know that they had to sell. Could Northern Rock be nationalised?
Great report. ~ I'm going to stick with Northern Rock ~ and get a good nights sleep tonight.
Three cheers for Robert Peston's cogent analysis.
But Robert, where were you on Friday morning, when the dim-witted presenters of 成人论坛4's Today program were 'dumbing down' the story and referring to it in terms of 'Northern Rock's overdraft with The Bank of England?'
Not surprising then that the N Rock website has crashed, the call-centres are overloaded; and panic and hysteria has broken out.
Perhaps if the 成人论坛 didn't consider financial news to be 'boring' and of low priority in these tabloid times; the news management would have been handled more sensitively and customers would have been better informed.
As it is, we shall have to witness more lazy journalists rehashing the 'panic' on Sunday and whipping up more hysteria.
Oh for the days of proper news reporting!
I couldn't agree more with what Chris S said about the need for the NR Board to become much more media proactive. Get someone who looks trustworthy (I'd suggest one of your elder board members - age reassures) on the TV, explain in clear, simple terms that peoples money is completely safe. And keep doing this. Indeed, to nip this in the bud, we could do with Gordon Brown getting involved in the media message - this is no longer just about Northern Rock, this is about getting the panicked mobs back to their houses. If there are queues in the street next week, our entire economy will suffer.
Excellent and informative analysis.
I'm extremely disturbed by some of the comments taking Mr Peston and/or the 成人论坛 for "irresponsibility", or "causing a panic". Some of the comments seem to amount to an argument that news of this kind should be suppressed, not spoken in front of the children - let the big people get on with running the economy, while the rest of us just meekly accept what they say.
The article itself shows that the "mysterious" world of finance, supposedly impossible for us grunts on the street to understand, can easily be made comprehensible to the average person if someone makes the effort.
As for "damage to the economy", the only damage I see being done is a probably unintentioned side-effect of the BoE's action. Which is that the BoE now has a direct interest in maintaining the value of the collateral it has received from NR. This means that the Bank, though independent of government, is now directly in hock to the unhealthy, unjust UK housing-market bubble. (This bubble is what some people mean when they talk about "the economy").
Sure, the Bank's exposure to a fall in house prices is probably minimal (I don't know the scale, or the term of its loans to NR). But the Bank is not an ordinary lender; unfortunately, extending this line of credit also commits the Bank to safeguarding it, something which it can and will do, being the Bank of England. The financial exposure may be minimal, but the political exposure is enormous.
The Bank is no longer independent. If it lowers interest rates I'll abandon all hope.
Northern Rock "gambled" recklessly on the perpertual availability of cheap easy credit in the money markets to enable them to grow their business and make money for their board. 拢1.35m for someone running a building society is madness. They deserve to be exposed as they have been. Shareholders deserve to lose their cash, and depositors deserve 100% of their money back fast. The lesson to be learned is no-one now believes Darling or Brown or the BBA. Brown/Darling should stop lying about their miracle economy predicated on increasing debt, mortgages should be restricted to mutual building societies, and credit lending should be hugely curtailed. Brown has led the UK down a blind alley built on US cheap credit, and everyone will suffer. Northern Rock is just the first casualty in this credit ramping confidence scam on the British people.
So in typical British fashion we seem to have found yet another reason for queing - you've gotta love 'em!! Whilst I appreciate peoples (uninformed) concern, am I right in thinking that The BOE did the same recently for Barclays? No panic there though. Personally, first thing Monday morning I'll be buying some NR stock.
In place of Northern Rock, if it was a customer who borrowed money and defaulted the payments, the bank would use all their powers and threaten the customer with repossession of the property and even send bill collectors and bailiffs to recover the debts.
In this case,for a change, let the bank taste its own medicine and become cognizant of the fact that how difficult it is to borrow money when no one wants to trust you.
Quote:
"Sometimes panic is self-fulfilling. This would be a pity. NR is a sound business and is backed by the Bank of England and the government. So it's probably the safest place for your money at presnet. "
A bank-run is self-fulfilling and contagious and this is presumably why the BoE has taken these steps. However since NR knew this, they obviously tried everything possible to avoid this, and yet still it happened!
This is also why the 成人论坛 and the bank are continually trying to emphasise that everything is ok! But this also means that they would have to take a similar approach no matter what the situation was (although obviously they couldn't say anything completely untrue).
Therefore everybody invested with them needs to assess the risk there is to their money. Although it is often crazy to follow the herd, sometimes the herd is heading in the right direction!
Everyone should carefully look at what everybody is saying. Most notably the government is not saying it will stand behind the bank anymore than any other (through the FSCS scheme). If I had a substantial amount of money in there (over FSCS limits) then I would probably withdraw the money unless the higher interest rate / withdrawal fees were worth the risk my money was at.
As for your statement that it is the best place for your money, are you serious!! It's called the lender of last resort for a reason. The other banks are obviously in a better position (even if Northern Rock are ok).
If you dont know what will happen then the best bet is to take
all your money out.
Its bigger than most of you think this will not go away.
soem one said "NR is a sound business and is backed by the Bank of England and the government" no and not for ever.
There is too much debt out there, no one knows who owes what and by how much, thas way over the pass month banks have been bending over backwards for peoples money.
If i were you i would take out my money from NR asap, call it the leakage and injection cycle.
when they talk about the 拢35k risk free band they forget about how long you have to wait for it can be up too 10 years before they give it bank too you with no interested added.
Quote:
"This analysis is basically non-sense. It doesn't matter how much the collateral is worth. The BoE needs to guarantee ALL deposits, and they need to shout this fact from the roof tops."
If this happens then I am setting up a bank!
Collect deposits in, invest in risky assets (maybe I will bet on the horses) and pay myself a huge salary for managing the bank.
If things go well I make money, pay the profits to the shareholders (me!) and eveything is ok!
If I run out of money then I go to the BoE and they bail out my customers (and I have still had my large salary).
That is the moral hazard that the BoE have been talking about!!
If I don't make money, blame a liquidity crisis and the gov
Get you money out fast as they are all going bust,don,t be fooled by the financial institutions that try to make money at our expense.Bring by barter,what do i get for two goats?
If the problems at NR have been caused by the ludicrous mortgage deals brokered by the US banks, what's to stop other UK banks and building societies having similar problems?
Is the situation unique to NR or are the big 5 banks also having similar problems but just haven't needed to go to the BoE yet?
I have read numerous articles on this subject and do believe some reporting has been irresponsible.
Though I think Northern Rock has master minded its own downfall with a funding model which has now been shown to be fatally flawed and an aggressive search of market share in the mortgage market without a firm foundation of savers money?
I sympathise with the savers removing their savings as the reason they have substantial savings is usually that they are adverse to risk and see Banks and Building Society as a safe haven.
With regards to Rods comment (26) regarding keeping the funding secret. As with any investment people have the right to know when a Company is in financial difficulty be it funding or otherwise this is the basis of the free market.
My worry is that the BOE may have others banks to deal with before the credit crunch is over and nobody really knows what the liabilities are with so many exotic debt instruments. With providing liquidity to Northern Rock it has set a precedent to other banks that it will be there to bail them out. No other sector has this protection and if a company mismanages its business it either fails or is taken over by a rival. To me it seems the BOE are following a high risk strategy certainly after Mr King stated the BOE were not there to 'get banks out of a jam'. To my mind if the Northern Rock is to be bailed out it should be done by the banking sector not the government as the banks and their directors have made an awful lot of money during the good times.
It's a bit rich for Angela Knight of the British Banker's Association to criticize Northern Rock customers for a lack of confidence in the bank by withdrawing their savings, when the Banks are themselves refusing to extend normal credit facilities to one another for fear of defaulting on the loans - so even they don't have confidence in one another!
Good analysis Robert. My only disagreement is tht is predicatd on rational behaviour, and past crises have shown that rationality goes into a tailspin on these occasions. I am sure that NR is very concerned about the currnt run on its most liquid asset - cash. If it continues breakneach fashion, it is possible the BOE will have to reconsider its rescue efforts. Effectively, if NR loses a high percentage of its deposits, it will have only a few bare threads to wear back out in the market when it goes looking for more funds. If the funds don't turn up, what will the BOE do then? It is literally a multi-billion dollar question with no certain answer. My own prediction is that another intervention by the BOE is likely.
Great article. In my view, the customers made a right decision to withdraw their money from the NR bank. Banking is about trust. Clearly, the NR bosses have wrecklessly gambled with the savers money. The issue is not that the NR lost some GBP 150 millions because of Subprime fallouts .Eveybody knows that the NR is a victim of "US exports of subprime poison". The issue is not about the huge payouts and bonus to its bosses even though the bank made some stupid decisions. The issue is about "TRUST". They put millions of customers at risk, by wrecklessly investing in stock markets.Why do people prefer to save in a bank? Because this is supposed to be the safest investment. If the retail deposits are unsafe, then there is something wrong in the system that need to be looked at.We all know that the govt talks a lot about stable economy. A stable financial/banking system is necessary for a stable economy. The boom n bust culture will not work . I hope lessons will be learnt from this crisis.
I don't think Robert Peston has taken the analysis far enough.
Even if the Bank of England lends money to Northern Rock - the punitive rates mean that Northern Rock's business is not profitable!
If people withdraw more than the 1.1 billion (and the fact that they are only issuing cheques now - suggests it has already happened) - Northern Rock is going to start to lose money on every pound withdrawn. Then it will only start offering people back 99 pence in the pound (or less) for their savings.
It will also have to start charging higher interest rates on its mortgages to stay in business.
If you've Money or Mortgage in Northern Rock I think you're in for a hard time ahead!
I've still to see a convincing explanation as to why defaults on high-risk mortgages in the USA makes it so risky to lend to an exclusively British mortgage lender which appears to have no problems in its own loan book. In other words, there seems to be nothing wrong with NR but something very wrong with the money markets in which it operates. Can Robert Peston enlighten me on this
I look after 2 Northern Rock online accounts for my mother-in-law and father-in-law (all done in consultation with them). One has 拢57K in and the other has 拢22K. I can now access both accounts online, which is reassuring. But, checking to see if I can withdaw funds, the website will let me withdraw from the 拢22K account but not at all from the 拢57K account. This is very odd. I have tried both more than once with the same result, so this is not just a random chance. Is NR blocking withdrawal from accounts above a certain amount?
Finally, customers are voting with their feet.
NR violated it's customer's expectations and quite rightly is suffering for it.
It doesn't matter about "liquidity", "emergency funding" etc. etc. because in the mind of the public this is just a bunch of bankers going blah blah blah blah blah blah blah blah.
The NR brand is permanently wrecked. Time for them to start again.
Don鈥檛 Panic!
I have worked in the Financial Services since 1984 and have seen the downfall of more Banks and Building Societies that I have got time to list. However you need to look at the reasons behind this request for assistance, it was to make sure that the Northern Rock had the ability to continue to trade under normal market conditions whilst the financial markets dealt with the problems caused in America. What we are now seeing are not normal conditions and this alone will be causing pressure on the funds available to the Northern Rock Board of Directors.
Barclays Bank had to borrow money 2 weeks ago and this was not as well reported, I am sure that HBOS, Abbey and Lloyds Tsb are all in the same position but keeping their heads down!
The Government must wake up and take some positive action sooner rather than later or we will see several High Street names disappear over the next few months. That will in turn cause a major loss of jobs, and this will not only be in Financial Services but will impact in industry, leisure, and most service industries.
The Bank of England wanted to slow down the Economy not bring it to a dead stop! I firmly believe that next week we will see the cost of fixed rate mortgages fall as the lenders try to keep the market calm. The Bank of England can not afford any of the major Banks to fail and whilst they refuse to be drawn on the subject they will end up providing all the assistance required at this difficult time, so don鈥檛 panic your money is far safer than is being reported.
Good analysis, only one problem, the value of the 'assets', these are invariably over priced houses occupied by over stretched people who have been encouraged to buy a house at up to 100% LTV and to make matters worse the bank lent them up to a total of 125% in a separate loan to furnish it or buy a new car or whatever. Sounds like the US scenario to me so let's look at what is happening over there, in one street of 11 houses 10 have been repossessed, the last one in can't move to another part of the country to to a new job because nobody wants to buy the house despite drastic price cuts, the community is now so short of municipal funding (because so few are paying rates) that they are having to close the swimming pool and other services. A similar pattern is festering in the UK with banks calling in business loans which has resuled in owners having to sell houses at 'forced value' to keep afloat. The 'sub-prime' market in the UK is, in some ways, worse than the US because property prices are almost double over here if not more.
It's all good news for Gordon Brown, nervous investors will desert shares and shaky banks and stick they money in the safest place, NS&I. Pension funds fled to government bonds but bought into really poor rates, so did Standard Life.
What was the FSA doing? It was fiddling while Rome burned once again.
A lot of labour voters up in Northern Rock land.
I would think if they all lost money they would not be for long.
I dont think they will lose money, political wiggly fingers will make sure they dont.
regards
jimmy
The management have handled the situation very badly. Are the Directors going to return the millions of pound of bonuses? I think not. Why do they Directors earn such high bonuses when they are playing with other peoples money? The Govenment should look at that and not use tax payers money to bail out or reward incompetance.
There are two questions:
1. Is Northern Rock safe?
2. Are depositors' funds safe?
So far as 2 is concerned even if Northern Rock goes down the tube with a splash, each depositor has a government guarantee for 100% of the first 拢30k, and a lesser amount of the next 拢10k.
How many of the queueing punters running to get their savings out had more than 拢30k on deposit?
This is a bank that had an advertising banner on its website earlier this week stating; "OPEN FOR SUBPRIME BUSINESS". They are a subprime lender so can we please stop repeating the false mantra that NR is fundamentally sound? Any mortgage-lender engaged in subprime lending will not survive the current lending market much longer.
NR based their cheap and high-risk lending policies on buying their credit cheap on world money markets (instead of holding deposits and borrowing more expensive funds long-term like better banks) and on securitised debt (i.e. packaging up their mortgages and selling them on as assets so they are moved off their books). That business model is high-risk and no longer viable as the appetitie for risk in credit markets has fundamentally changed since August 9th.
To me, that shows that NR is fundamentally unsound as a business and will not survive the current repricing of risk, regardless what their deposits and loan book look like. I don't have any money with NR or shares but if I did, I'd be bailing as well. Clearly the fund managers who hold shares in NR are of the same opinion. This is not a business that has a future, especially with UK property prices falling 2.6% in August alone.
Great article. In my view, the customers made a right decision to withdraw their money from the NR bank. Banking is about trust. Clearly, the NR bosses have wrecklessly gambled with the savers money. The issue is not that the NR lost some GBP 150 millions because of Subprime fallouts .Eveybody knows that the NR is a victim of "US exports of subprime poison". The issue is not about the huge payouts and bonus to its bosses even though the bank made some stupid decisions. The issue is about "TRUST". They put millions of customers at risk, by wrecklessly investing in stock markets.Why do people prefer to save in a bank? Because this is supposed to be the safest investment. If the retail deposits are unsafe, then there is something wrong in the system that need to be looked at.We all know that the govt talks a lot about stable economy. A stable financial/banking system is necessary for a stable economy. The boom n bust culture will not work . I hope lessons will be learnt from this crisis.
The run on the bank was caused by the authorities changing the compensation arrangements. If you stand to loose 10% of any amount between 拢 2,000 and 35,000 it makes sense to make a run for the bank.
The authorities should have announced that there would be 100% compensation upto 拢35,000. This would have reassuared the majority of NR depositors.
A run on a bank is suppossed to occur in a Third World Country not in the Fourth richest country in the world. Imagine the damage to UK plc when these pictures are seen all over the world
The management have handled the situation very badly. Are the Directors going to return the millions of pound of bonuses? I think not. Why do they Directors earn such high bonuses when they are playing with other peoples money? The Govenment should look at that and not use tax payers money to bail out or reward incompetance.
I couldn't agree more with the sentiments expressed by Terry. The queues of people outside NR are leemings hurling themsleves off a cliff. They should stick with this established solid Bank and ride out this temporary and extraordinbary situation caused, not by NR, although they did take a gamble here, but by the ridiculous lending criteria used in the so-called sub-prime market in America. Once again we can thank the Yanks for a crisis of Global proportions. Don't be daft on Monday, panic withdrawals are not the way to stability now and they never will be. The NR is sound as a pound (or at least 拢1.05 anyway!). If the BoE is prepared to back this horse to win then so am I !
I have an internet account and like many cannot get online due to everyone.
Yes i hope the predications are all correct that our money is safe, i went on line on friday to transfer funds to my bank account (unaware of what was going on) as it is my daughters wedding a week to day an need to pay for a hell of a lot. Does anyone know if the branches will help, subject to wait or not, will they only deal with normal account holders. or do i need to go to my other bank and ask for an overdraft
Can anyone answer this? What happens to the cheques that Northern Rock are writing today to customers who are closing their accounts, if they go bust? Won't these cheques bounce? Are they covered by the same financial guarantees as money in Northern Rock accounts?
This is the thought that has kept me from taking my money out.
The run on NR is a result of its liquidity (mis-)management as the securitation market has now effectively closed at the rates NR can afford to pay and other banks are not willing to lend it money because they are fearful of its asset quality and undiversified monoline business. NR's franchise value as a going concern and an efficient low cost lender has to be offset against what is likely to be a very negative real book value. NR is highly levered with 拢120bn of mortgages against 拢2bn of equity. The value of these assets are no longer 拢100 for every 拢100 on the open market because risk premiums have increased and NR's high LTV mortgages become very risky as the UK housing market declines. In the highly unlikely event that NR were forced to unwind its books, as opposed to being bought, the losses would be huge. It is more likely that they are bought by another bank but even then this may happen at a distressed level in which junior debt holders have to accept a loss.
Depositors are senior in the capital structure and have more to fear from an inability to access their funds every a substantial time period than actual financial losses. However, if I was a depositor and can get access to my funds then I see little reason to run any risk and would certainly move them to a larger more diversified bank.
Mr Preston acknowledges that internet customers cannot access accounts. So is there anything they can do to gain access to their funds? It is impossible to ask anyone on the phone. Is it possible to obtain them by joing the queues at shops? I have tried to gain access many times but always the door is barred.
My question is the same as Joadie's. Mr Preston acknowledges that internet customers cannot gain acees to their funds but says nothing about what they can do about this. I do not know who to ask since the phone line is useless and the web site says nothing. Can we get our money via shops or are we just stuck until some vague time in the future? Is there a body to whom we may appeal to get monies released?
One has been highly amused by the charades of all the plebs twadling orf to their local bank to save their 2 and 6 from being gobbled up by nasty, vileous thieves in suits. It has amused me because of all the dissenters who view those sharp-minded oaps as panicky scaredycats. What the dissenters don't understand is that although the Bank of England say it'll pay out such and such, it doesn't say WHEN.
One simple thing comes out of this.
Only people who are worried and spending their time in queues are the savers. Not the borrowers.
They are the people who live in their means and have a saving for the rainy day. They are the people with the stress.
And guess who has no problems, people who have over stretched and bought homes/gadgets etc.
What an irony..?
Oh dear, since when has this Government ever succumbed to "moral pressure"?
Such a fine set of articles and responses here. Its a disgrace that the TV media has rarely provided us with such information.
My mother withdrew most of her savings a week ago and since then she has been frustrated with the lack of TV reporting on these problems.
My family was in Russia during the time when Yeltsin's policies caused the banking crash and many of my relatives lost all their savings. They queued outside banks for days and for each 1000 old roubles on deposit they received ONE new rouble. For most people it wasn't worth queueing. Of course things are different here - the BoE supposedly keeps us safe.
Last Monday and the problems of the Victoria Mortage company now seem a long time ago. Were they mentioned on the TV media? Perhaps it was one of the first holes in the dike although most of the people here seem to have seen the cracks appearing a long time ago.
To those who say we should remain calm and have trust in the system - I say think of what happened in the Russian and Argentian bank collapses and play safe by getting your money out now. The BoE doesn't care about the individual just the system.
A few of the people commenting have indicated that NR are engaged in high risk lending. Whilst NR has been prepared to extend aggressive multiples or percentages, this is not the same as "sub-prime" lending - which relates to the credit history of the borrower. The current delinquent rate (those accounts in arrears 3 months or more) as stated in their recent investor relations piece is only 0.47% which less than half of the industry average.
Their issues have NOTHING to do with their loan book - it is entirely a funding issue related to their strategy of securing most of their cash from the credit markets rather than their savings business.
Finally - I wish the 成人论坛 would stop calling this a "rush" on the bank. This is an old-fashioned bank run - plain and simple. See for a reasonable definition. In my book it comfortably passes the "duck test" no matter what others may try to say (See )
The problem is that NR's whole corporate strategy that the bank has been built on is now redundent.
With this is mind, Yes your money is safe, You might have to wait awhile if you want to get the money off the BOE or Govt, if you don't take it out.
As to the Shares the company is now worthless, with the entire loan book going to be owned by the BOE. This will then be auctioned with the BOE probably taking a loss.
Anyone with A&L or B&B shares should think about selling very quickly.
Well, let's think a little about how liquidity and credit works.
Banks, no matter how badly or well run, need only need to keep a small portion of assets to back their lending. That is simply how the economy and credit creation works. Even the moralists in this lengthy trail will have had benefit from that.
However, should everyone demand their money back at once then all banks, again, however well or badly run, are in the proverbial dog doo. As are those that have in the past benefitted from this system.
To talk of the 成人论坛 as "irresponsible" or that the system is "wrong" shoots the messenger and completely misses the point that if we all remove our cash from our banks then the system will collapse as sure as eggs are eggs.
It is all a matter of confidence. That nobody believes the government is no surprise nor, honestly, should it be. Nothing has fundamentally changed although sound monetary policy suggests that the BoE should continue to act as a lender of last resort.
Yes, we can have a run on any bank now. After Northern Rock there could be others but is it really likely? And, if so, would the scale be crippling in a large scale way?
I don't think so.
The government assure Northern Rock savers that their deposits are safe.
So why all the queues outside every NR branch? Why are people taking out thousands of pounds and in at least one reported case a million pounds?
Perhaps it is because these savers don't trust this government.
Now there's a surprise... NOT!
Re post 72 - you can get online, it can take a few attempts though. Make sure you refresh cache for each attempt.
In light of your comment about Northern Rock potentially being one of the "safest" banks in the world following the comments of support by the FSA and Chancellor - these words do appear somewhat comforting.
However, would it not be more reassuring for the Chancellor to pledge a 拢1 for 拢1 support for current (not new) Northern Rock depositors to stop the run immediately in its tracks? i.e. He can put his money where his mouth is.
Points aside, if the bank is really as sound as they make us believe - then the government should have no issue to protect current depositors and put a stop to the financial turmoil.
The best way for the government to reassure investors that their funds are safe in fsa approved agencies is to provide a 100% guarantee of immediate repayment. A percentage of this and a percentage of that is no reassurance. In the event of a claim " against the guarantee" where is the small print ?
Mr Peston, I think it would be good if you could write an article explaining why Northern Rock's situation (ie well capitalised but suffering from a lack of cash flow, had it not been for the Bank of England's backing) is fundamentally different to the situations of Barings or Equitable Life - where the value of their liabilities exceeded the value of their assets.
Even if all the deposits currently being withdrawn have to be replaced in due course by funding from the Bank of England, Northern Rock will still have good quality assets worth substantially more than its liabilities, even in the event of a reduction in house prices.
According to their published accounts for 2006, the average loan to value ratio of their mortgage book was only 60% and their default rate was less than half the industry average. It's hardly surprising that the Bank of England is happy to take these sort of assets as collateral.
It it me or has the lender of last resort valued all uk mortgage assets at 95p in the 拢.
If banks are forced to mark to market
their portfolios how many would be insolvent?
The finger firmly points at Adam Applegarth. How many times has he travelled to the US to be wined and dined by investment bankers in the last 3 years when he should have been driving a diversified business strategy to avoid this current problem.
THe Govt / BoE would be crazy to let any bank fold in the current climate, fundamentally sound or not becuase of the systemic risk (domino effect or whatever you want to call it) that would result. I don't have money with Northern Rock but if I did I would not be worried - indeed NR may be benefitting where people withdraw funds from notice accounts and forgo interest?
Longer term what value the NR business may have will depend on the time mismatch on its assets and liabilities - where it has floating rate borrowers it can raise rates to cover its cost of funding - it may not get much new business but where customers switch elsewhere it will obviously no longer need to fuind their loans. More problematical are any fixed rate mortgages / loans. If these are consitently earning less than it costs to fund them than shareholder capital could quickly disappear - paying out 1% more on 拢100Bn of short terms borrowing than you are receiveing from your borrowers quickly becomes very expensive...
Depositors are having to accept materially greater risk with no compensatory increase in return. Any depositor should withdraw his money immediately and find a home for it which allows him a good night's sleep.
Most of the discussion which I have read ( and I have not read all of it) is more relevant to the potential equity investor. There will be a point at which the possible future earnings of NR offer good value in terms of a reduced share price. In this equation its ability to weather the liquidity storm is critical - but it will be a gamble, although one with an upside not available to depositors.
Another factor in the gamble is the value of the underlying assets. We would be foolish to believe that a material fall in house prices is not a possibility.
The shareholders ought to be on the streets demanding an extra-ordinary General Meeting.
Waken up you dozy shareholders - this board has just lost loads of your money!
Northern Rock employees are the ones I feel sorry for. They must feel under siege in those branches and their wages are doubtless last on any list of concern.
I am so glad I sold my NR shares some time ago to help fund an extension to my home. As I see it the shares will get completely bombed out next week.
Greed has caused this problem - a pursuit of easy money by use of more and more "sophisticated" financial products dreamed up by smart alec mathematicians pursuing their bonuses and embraced enthusiastically by executives wanting a seven figure salary package - lord knows what new disasters await us as these "Emperors New Clothes" products implode around the globe.
The limp wristed regulators are powerless to intervene meaningfully and NR investors are quite correct to attempt to get their cash out as soon as they can. Remember the repeated slashes of value made by Equitable Life. Loyalty is for mugs.
This is the culture of the trough - the smart snouts have already been in and had their fill of the slop paid for by the average Joes. On Monday the trough will be sold for scrap.
Do you recall the bonkers economics of the "Hitch Hikers Guide" with monetary systems confidently based on leaves - Douglas Adams saw it all coming !
If it's unable to get hold of new money why can't NR suspend current mortgage applications and not accept any new ones until the liquidity situation improves and concentrate on making money with its existing mortages and loans?
I think that it would be extremely foolish to expect the government to use taxpayers money to bail out all savers in Northern Rock on a 拢 for 拢 basis. No such promise has been given and savers would be well advised to cover themselves. In the present circumstances it seems perfectly reasonable to head for the exit doors as only the first 拢2000 is 100 % covered in the event of default. Those urging calm the loudest should fess up as to whether they have any of their own savings deposited in Northern Rock. The idea that the Old Lady should advance billions to this bank to keep it afloat smells of expedient action rather than prudent calculation. No I advise all of you who have managed to save a small nest egg despite the governments attempts to take it from you in taxes not to take any unneccesary risks. You have worked hard for your money so keep it out of the reach of a bank with a flawed business model. Thanks again to Robert Peston for doing a great job.
Gary E, suggested buying gold sovereigns!
Good idea! What happens when there are queues outside gold shops?
Easy to answer 鈥 the price goes UP and UP - you can鈥檛 run the printing press on them.
If banks don鈥檛 trust each other with loans why should we?
These government loans to NR are just pumping more money into the economy which means Galloping Inflation and currency devaluation.
It is the printing of money that has lead to the record oil prices, wheat prices and gold prices.
These bankers will lend you an umbrella when its dry and ask for it back when the rains start. How they must love electronic banking so nobody can take their money out!
French TV just showed queues outside NR branches. They ain鈥檛 seen nothing yet.
Now is the time to dust off the old banking maxims. "Don't borrow short and lend long" for one. There is an old proverb "Don't put all your eggs in one basket" which many Northern Rock savers would have done well to remember. Sadly, greed is often the cause of these crises.
It doesn't matter what the BBA thinks. Northern Rock had a fundamental liquidity risk in it's business model, make handsome returns for a while but eventually got it's arse bitten. As is the customer's prerogative in any line of business, they can vote with their feet when expectations have not been met. Same with traders dropping the stock. Live by the sword...
I'm not expert at all but I can't help feeling that people panicking to withdraw their savings does nothing to help Northern Rock's predicament. The analysis says they have sufficient coverage even in the unlikely event that every saver withdraws. This seems like typical siege mentality - like petrol shortages. People queue to fill up when they don't necessarily need to thus exacerbating a shortage situation - except there isn't a shortage for Northern Rock as I understand as they have the Bank of England underpinning them.
A lot has been said about private savers but what about businesses that have substantial deposits with one bank are they protected by the compensation scheme?
I fail to see where Northern Rock go from here.
Losing so many of their customers deposits means that the funding has to be replaced by more expensive BoE loans. The mortgages that they previously granted will therefore earn lower profits (or no profits?).
The money that the BoE is granting them is at a more expensive rate than their competitors - this would suggest that it is going to be difficult for them to compete in the new mortgage market.
The only flow of public savings is going to be out through the front doors, and new mortgages are going to be few and far between.
There is a major lack of confidence is Northern Rock now and it is difficult to see how that can be reversed. A profit warning may be the next action, but this would only make the issue of confidence all the more problematic.
I heard on 5live how a member of the public stated how proud he was of himself that he had withdraw savings from NR and had reinvested it into their shares to make a fast buck. It is possible his greed may leave him between a (Northern) Rock & a hard place.
It's funny how the mines and the car companies were de-nationalised but yet nobody bats an eyelid at the sight of the Treasury chucking billions to subsidise a bank. One law for manufacturing industry and another for the City, I guess!
It's funny how the mines and the car companies were de-nationalised but yet nobody bats an eyelid at the sight of the Treasury chucking billions to subsidise a bank. One law for manufacturing industry and another for the City, I guess!
This is a good, but not excellent article. [Written in a bit of a hurry?]
"Some 拢1bn was withdrawn by customers yesterday, much of it from bank branches."
Sorry, but this gives the impression that the majority came out of the branch network, and re-inforces the impression that internet transfers are 'frozen'.
This appears not to be the case, as News 24 have stated that 拢 250 m came out of the branches and 拢 750 m from internet accounts.
"My understanding is that it wants more than 拢105p of collateral for each 拢1 it lends." It is poor style to write both the pound symbol and the pence symbol in one figure. Use one or the other.
Sorry to be a bit pedantic - but the devil is in the detail at times like this.
I've been a gold and precious metals investor for a couple of years now. what i've found out about banking and how it all hangs together has been a real eye opener.
the subprime debacle is a lot worse than anyone in authority will tell you. I've been reading about the dangers in subprime and mortgage backed securities for well over a year now and the worst predictions I have seen are coming true.
never trust the clowns in banks and government - what is playing out now is the next great depression. the economy is not strong. we don't have an economy because we sent all our productive fixed capital to china. we simply print money and and blow a housing bubble that makes ordinary people thunk they are richer.
northern rock provides a lot of subprime morgages. why is the media not talking about that? do you think that nr's loan portfolio is worth anything in a recession? do you think we can avoid a housing collapse when interest rates get higher?
tell me what nr's portfolio is worth as collateral when morgagees start to default! the clowns in the bank of england won't fix this. the fed won't fix the american situation either. this is just the beginning.
Some sophisticated analysis here - some reassuring, some not. But even if I am reassured, I still need a banking service from Northern Rock 鈥 and there no longer is one. All my instant access 鈥榗ash鈥 savings that I need to access on a regular basis are in the on-line 鈥楽ilver Saver鈥 account. I鈥檝e been trying to access my account for two days and I (along with countless others no doubt) receive the following message: 鈥楿nfortunately, the system is currently very busy. We apologise for any inconvenience caused and ask that you try again later. Thank you for your patience in this matter.鈥 Northern Rock is blocking my access to my funds. I need my money to pay bills and I cannot get it. There is a lesson here for everyone with an internet bank account. Northern Rock has broken its promise to me irrespective of its future and on this basis will receive no further business from me. Confidence and service are prerequisites in choosing a bank.
Whatever all that means,I do not know.But after being stung by these so called 'experts' with our endowment mortgage a few years back the slightest unease we have with our retirement savings in the Yorkshire Building society and the Nationwide ,all ISA's and savings are out and stuffed under our mattress.Once burnt,with Standard Life,when we lost thousands,and also with an endowment mortgage ,which,luckily we were able to prove was miss-sold,I have no trust,or faith,in the upper echelon.I do not believe them,they only look after each other.So if the situation deteriates we will be withdrawing our savings.
Both my wife and I have savings accounts and we are trying to stay calm about the situation but I am as of now (11:20 pm Saturday) not able to get into my account and I dont believe the notice on the web site that they are busy - It has been like that all day. How can we be sure as to what the situation is with the Web Site. Can Robert or someone at the 成人论坛 get Adam Applegate (the CEO) on air to give his personal assurance that NR is not blocking logins. Last night I asked for someone to call me via the form on the website at anytime today leaving mobile and fixed line numbers and as of now I have not had any response. These are things that Mr Applegate and his team have some control over and their non performance is more damaging to their credibility in my eyes than the press analysis. Have they forgoten how to treat their customers especially their private savers. Why have we not had a personal letter from the CEO telling us waht facilities are being made to permit on-line account holders to have access to their money???
Yes, a really useful analysis,
Seems to me that this is all about perceptions, not reality. Just like the stock exchange and equity valuation; when the perception changes so does the valuation. Whatever the BoE says is irrelevant, as the very fact that they have to say any thing means there is a problem. The more they say it, the bigger the problem.
The rest of the banks are about to report, I think, and then we will see the other side of this particular coin; that is the amount of the sub prime risk our friendly local banks have taken on board.
Additionally, I will be interested to see what happens to the two bids for ABM Amro. In this climate I suggest both should be shelved as valuation of banks are now completely suspect.
I would think that this situation will bring about the correction in the equity markets, both here and in the US, followed by a recession and a reduction in house prices in the region of 10-15%.
So it's the old cycle of boom and bust again. Greed and speculative bubbles create the atmosphere, with the Chinese deflationary effect maintaining the bubble for longer than usual.
What planet are you living on? Do you have any understanding of the money markets? Do you have a clear understanding of what is going on?
More importantly - are you being told what is a good story rather than what is fact?
Northern Rock is in a sound financial position. However, due to the gun hoe (suprise! suprise!) attitude of the American's, international banks are no longer making funds available to other international banks. Northern Rock depends on these markets to finance new mortgage deals. As no banks are willing to deal in the money market, the BoE has agreed to offer funds at a premium (profit making) rate to Northern Rock.
There is no crisis, other than what has been created by the media. Now the lemmings are no longer queuing at the cliff but at the branch office door. Has it been that bad a news day for this to be the top story!
So why is Joe Public so narrow minded that they can't see the logic behind NR's borrowing request to the BoE? They want to continue to provide new, inovative and competitive mortgage products to Joe Public himself, but because there is a lack of 'short-term' money available to borrow from the markets, they ask a lender who happens to be the BoE and this lender says yes, suddenly the whole world falls apart. A lender is a lender and they are going to borrow the money anywhere they can get it to continue doing what they have always done. Would Joe Public much rather that NR shut its doors completely to new business thus stifling growth and future profitability? Oh, and as an aside, I do believe it costs less to borrow at 1% above BoE base rate, at 6.75%, than it does to borrow at current LIBOR, 6.9% or there abouts. I think NR should be commended on their move here as it might cost less to borrow from them in the near future!!!!
It's a neat analysis but it means nothing since Robert Peston isn't about to provide me with a guarantee that all my money is safe. When somebody other than Robert Peston - like the FSA, the Bank of England or Gordon Brown tells me that my money is 100% covered even if everybody else withdraws all their deposits then maybe I will stay at home on Monday morning.
I wonder how many of the people who commented above stood in a queue for 5 hours today - in the company of very many elderly pensioners with savings on deposit well in excess of the 拢35k threshold. I personally moved about 100 feet in 5 hours and still had about 150-200 people in front of me when the branch shut at 2.00pm.
People stand in queues because they have lost confidence, don't know who to trust any more and frankly can't afford to run the risk of leaving their money on deposit in case it all goes badly wrong.
As it is, since the only people who got into the branch today were those who were in the queue no later than 8am, there was some speculation as to whether a tent city would be setting up on Sunday night to ensure entry to the branch on Monday.
And the next time somebody thinks about making a 'smart' remark targeted at investors - maybe they could ask themselves what they'd be saying if was their father or mother who I stood next to in the queue today. Do you know anybody who can give them a cast-iron gaurantee that their money is safe?
Yes the government will bail them out at taxpayers expense. That's the nature of the so-called free market economy we have.
I have the same question as deagle earlier - I was in the middle of setting up a replacement account for my NR Savings when the news broke - have you analysed the risks that other institutions are taking?
If THEY run into trouble, will THEY be given Bank of England support?
Why all this fuss with Northern Rock? Barclays went hat in hand to the BOE as well. That wasn't as widely covered as this.
Many years ago,building societies were local organisations,who took deposits from locals and lent money to locals to buy their houses.They did not rely on outside funding,and were run on a conservative basis.
Then mainstream banks thought that they might like to get in on the act,by either offering their own mortgage products,or buying existing building societies and using their branch networks to sell the parent bank's own mortgage (and other)products.The banks could also be a source of finance to their building society subsidiaries.
With mortgage debts shown on the bank balance sheets,a means of shifting them of the same balance sheet would enable the banks to have larger lending capacity(and more profitability).The same went for credit card debt.
Meanwhile building societies got bigger with takeovers(eg Northern Rock).In order to increase their capacity to lend larger sums for mortgages,not supported by their own deposits,they needed to borrow externally,so started calling themselves banks too.
These 'banks' now started to issue mortgage backed securities to third parties,and these were supported from the punters mortgage payments.However,to ever expand their ability to grant credit,while meeting solvency rules,more and more credit card and mortgage liabilities had to be shifted of their balance sheets to accomodate more lending.
Some banks now decided that they should borrow from each other,on a short term basis,to have even more money to offer for long term mortgages.Thus a fundamental mismatch between borrowing short and selling long was set up.Neither the FSA,government or any other authority thought this strange and assumed that the merry go round would continue.
The FSA and government failed to appreciate the risk,and people like Northern Rock,if they appreciated the 'borrow short,lend long' risk,did nothing about it.
Thus the government in the shape of the Bank of England,the FSA and our government is now using taxpayers money to bail out an institution,which should have been allowed to fail.Other equaly reckless banks now know that the price of their failure to calculate risk,will not cost them their banks or their jobs.Had they been in The Forces,and not calculated such risks,they would probably now be dead,together with their soldiers.
_________________
111:
I think Robert has a much better understanding of finance than you. Don't believe me, check out his history from the top of this page.
Also, surely the risk of people losing their life savings is a worthwhile story!
Your comment is racist and frankly ridiculous. Everyone likes to blame America, but is the borrowing situation here any different? The only difference is that our house prices are holding up at the moment (see rightmove monday).
Why would banks not lend?
1. They think its too risky
2. They don't have any spare money of their own to lend
Lets hope 1. is the reason. If this is the case, why would anyone want to lend money to a company that the experts at the banks think are too risky?
Anyone else wanting to abuse the "lemmings" should instead go down to a NR branch and Monday and open an account. If your not willing to do so, please don't make comment on others withdrawing their life savings!
Perhaps NR should increase mortgage rates and ease redemption penalties sufficiently to encourage a mass of redemptions? (I'm awake at this time on a Sunday morning to see if I can access my NR internet account. Of course I can't, the site is still "too busy". Ho hum.)
Lets face it, NR have been running their loans business on spurious, unreliable, speculative, money markets, they got caught out, are there any others out there who are on the brink and not telling anyone ? No I would not want to know in case the financial system suffers a total collapse in confidence, but you know what I mean, sharks playing spreadsheet games with people's life savings.....
So basically, the root cause of the subprime crisis is that bad loans were bundled into bonds (With AAA ratings by the credit agencies) and then sold on stock markets for the consumption of international investors . Do you think this an act of clever financial engineering? I think this is an act of deceit.
A fraud invesigation is the need of the hour.
I have been constantly trying the website to gain access to my account to no avail. I do not believe that the system is constantly busy 24/7. I started to access the system on Friday morning and it was not working then. My local branch said it cannot deal with my account due to it being opened via the internet. Surely this is the same Company that I am dealing with and my money is the subject in question! How can I get access to my savings a.s.a.p please can anyone advise. I heard that a couple in Cheltenham threatened to stay in their branch until it released their money which was 拢1 Million although it was an online account! Can someone advise please.....
If the BOE can be paid 7% for their money, why doesnt NR offer to pay all depositors the same, provided they keep their money in for say 12 months? This might stop these silly withdrawals and give the BOE a bit more to play with
If the BOE have pledged to support up to 拢24/30 bn, why do they not guarantee all depositors that their money can be withdrawn after a period.
If the BOE guaranteed the depositors instead of the NR in this way, withdrawals would soon stop.
Good for everybody?
I'm stopping in.
Darling and co will try to save Rocks to go in vain as it would trigger nasty demolition of financial market but what if we have another Rock round the corner?
I believe that the article was very good and more are required to give people more understanding of the situation.
I do believe the media has done their usual thing and dramatised it to get headlines etc.
I also feel sorry for the people with money saved in the bank but I don believe the rush will only course a wider problem as all the banks are in the same position. The NR is a lenders bank and unless the lending goes bad it is safe. If it does go bad then we have a bigger problem than a bank going down so your money will be affected in or out of the NR.
We have spoken about savers and people with mortgages but what about the families who have exchanged on new property and are expected to complete in the next month?
Where do these families stand?
Will the NR still provide the funds to them?
Edmund Naish wrote that he would be buying NR stock on Monday but as they have or are going to pledge all their assents to cover outgoings, I wonder what you would be buying? The share price has been falling for the last 6 months so the city knew that something was up months ago. Be careful.
I managed to get access to my NR internet account Saturday afternoon so the site is running normally but overloaded.
The article and bloggs are very interesting. The main point is 'trust'. I do not pretend to understand all the machinations of banking and 'trust' banks to invest my money safely with corresponding interest rates.
In this case NR have lost my trust. Who do I trust now?
The part that I don't understand is that this is the 15th time in 2007 that a Bank has gone to the BoE for financial help. All the others were kept quiet. Why not this one?
Doh!
Asong as house prices, against which loans are secured, stay in positive territory with espect to the amount borrowed, the NR and BoE stand to loose nothing. The BoE (and NR) loans are secure and bothe have played a great card, great % rate and great security card. But, if the money they need to support furthe loads (savers money) dries up, Or/and (worse case scenario) house prices start to fall, then they and other lenders will be in a big pile of doo doo.... but BoE could drop interest rates, then we see inflation rise and hey presto boom bust boom cycle starts again..... rocky road ahead...
Why is Adam Applegarth not being challenged more to improve web access to on-line accounts. Over 4 days of trying have delivered no successs and the online tel support number is constantly engaged.
Never mind the cause of this financial crisis - customer service and on-line access are the sole remit of NRock and they need to improve and quickly!
PS : is there a breach of contract here by NR - if tey insist on web accesss for on-line accounts but do not have systems that can provide it then can they be brought to account?
Doh!
Asong as house prices, against which loans are secured, stay in positive territory with espect to the amount borrowed, the NR and BoE stand to loose nothing. The BoE (and NR) loans are secure and bothe have played a great card, great % rate and great security card. But, if the money they need to support furthe loads (savers money) dries up, Or/and (worse case scenario) house prices start to fall, then they and other lenders will be in a big pile of doo doo.... but BoE could drop interest rates, then we see inflation rise and hey presyo boom bust boom cycle starts again..... rocky road ahead...
I work in an industry that comments on bank performance, and I feel compelled to write because as ever, there has been a ridiculous over-reaction to this news.
One poster correctly said that the media have been partly to blame for stoking up panic by talking to 'the man on the street' who as ever knows nothing about banking, and why would they?! It is a complex business and I'd guess they know equally little about running a nuclear power plant, but we don't ask for comment on that! People still think banking is in the stone age i.e bank only lends what it gets from customers; if that was the case most of you wouldn't have a mortgage!
The reality is, people coming on here to complain about Northern Rock are those with a gripe - people who have been happy with the bank and what it has done for them are less motivated to come on and say that - fact of life.
In and amongst the criticism of the bank's lending over 100% to some customers, there has been no acknowledgement that in many cases the bank's lending has been the only way cash-strapped first time buyers could buy a home. When you look at their accounts the quality of this element of their lending is still good and less than the average arrears rate across the industry. Irresponisble, I don't think so.
Let's also not forget that this bank, whose chief exec has the temerity to earn 拢1.35m a year (actually very low by FTSE standards) also gives 5% of its profits to charity each year, which amounts to hundreds of 拢million in recent years.
And, for those thinking Rock is a 'greedy' company - a look at its accounts reveals the margin it makes (i.e difference between rate at which it borrows, and at which it lends) is thinner than almost every other high street bank. This means across the board Rock offers customers better value than many other banks.
Finally, for those who have actually bothered to read the reportage, NR has no exposure to any toxic sub prime lending in the US. Every other key UK bank will have and will be experiencing big losses (Lloyds, HSBC, Barclays) funny how they have all been very quiet on this, and only rock and Alliance and Leicester have said anything. Coincidence? I think not, so watch out for news from these banks in the next few weeks.
The herd mentality of 'knock Rock' is typical of the eeyorish British mentality. Knock banks (how dare they make a profit), act without thinking, bury heads in the sand.
The reality is banking is one of the things the UK does best, it provides thousands of jobs, revenue and wealth for the economy. We should support, not knock because rip-off Britain is not due to it's banking!
The real losers are the shareholders, but then I suppose they deserve to be punished and lose their money for the temerity to actually have some money in the first place!
Hello Everyone,
Please listen. I work within a financial institution who assess debt/risk.
We have entered a vicous cycle where our economies can only be supported by increased spending, yet there is soo much debt, no one can spend anymore.
What concerns me is the FED planning on cutting interest rates to increase spending!! The US are so stupid!! can't they see why we are in this mess in the first place.
Our economies can no longer be supported by debt spending, this is not the answer in the long term.
Interest rates need to go up, and a lot of financial pain and suffering over the next 10 years to bring everything back into line.
Companies will go bust, people will lose jobs, House prices will fall, The city wont get its bonuses. It si looking very bleak.
As for northern rock, don't listen to the goverment/NR. Please believe me there is a concern. There is a true concern you will lose your money. There was probably no risk if everyone didn't take out there savings, but how can NR manage their situation with people removing 拢billions. after all they were needing money before the stampede. And as for the goverment bailing them out.....why do people trust the goverment?? If you lose your saving....they wont help!
If I had money in NR and hadn't taken it out over the last couple of days I would. I would be camping tomorrow morning. NR are runnning out of money and the goverment will only give upto 拢21 billion ( for all banks!!) They aren't going to give it to one bank.
Await the next few weeks for more insitutinos in trouble.. I would like to see how the goverment acts when there is no money left in the pot to give out.
I don't think tax payers money should be bailing out banks, unfortunately like rich people.....they have more money than sense!
I await to see the carnage that is left at the end of next week! It could be real messy.........
This event has its origins firmly rooted in the past. Those running Building Societies (as NR used to be)wanted more...more to lend and more for themselves. So, how to get the "shareholders" to agree to this? Offer then a couple of hundred shares in bank rather than a BS. But banks unlike BS's operate in quite a different way. Not only are they out and out "for profit" companies, they also lend money they don't actually have...money they have borrowed from other banks an somewhat more complex model than the BS. Of course 99.5% of the time this all operates swimmingly. Unfortunately one of its corner-pillars is customer confidence. It would seem that a significant number of NRs traditional "supporters", its individual investors and the institutions it also lend it money are exhibiting waning confidence. For what I gather it started with the latter...so don't blame the former for the events that have unfolded.
The level of ignorance demonstrated by people posting in this thread or commenting to people queuing outside Norther Rock branches only indicates how little people are aware of the fact that compensation is only limited to 拢31,700 of the first 拢35k and no more
Can we start to ask what is the responsibility of a bank or a regulator which accepts deposits in excess of 拢35k from people of pensionable age or who indicate they are investing their pension lump sums as I did.
Why can't we start to see a limit on the exposure to risk by individals of pensionable age?
We stood in the queue yesterday trying to work out where on earth we were going to put our money since the 拢35k deposit compensation limit applies to all deposits with companies within one group. That means one group - one 拢35k
How on earth is the ordinary man or woman in the street supposed to know which financial institions belong to which group?
And how do any of us know where it's safe to place any deposits in future? Must pensioners - an ever growing body of people - limit their investments to government gilts in future to avoid any uncertainty - and the anxiety and stress associated with the current situation.
Great analysis --- Numbers are quite scary :( this recovery remain to be seen
I have no doubt that banking is an awfully complex business and the man in the street has no business having an opinion on such a difficult subject. However the various sources of information on this subject are naturally biased - the BOE want to encourage stability, Gordon wants to avoid embarrasment and many of the posters above belong to the usual subjects, government trolls and regular contributors to websites like housepricecrash.youknowwhat!
We surgeons have a saying - if in doubt, cut it out. I'm afraid I emphathise with the lemmings.
Can we please then have a headline to reassure existing NR customers that NR is borrowing money to lend to new customers who have been promised mortgage funds and is NOT borrowing to fund the interest charged to the savings accounts of existing customers?
I agree with 138 Laura.
I have seen a lot of doom and gloom in my past which seems to be a human trait which helps no one.
People want some hard facts now and what is next.
The media also need to stop there part in the doom and gloom and keep it to facts only. They are there to assist with that I believe or maybe I am wrong.
Also the news reported that other banks were going along the queues telling NR customers that NR was down and out,,, for their own gain. Is that the right way to do business?
I also have freinds waiting to move to a new house they have bought which is funded by NR and they could lose more than most if NR do not provide the funds on the day. They have been told that business is as usual by NR but they are worried that other peoples doom and gloom and agreed could change that for no reason at all.
Steve Smith,posting 132, the Banker (yes spelt with a B) informs us that the Chief Excutive earns 拢1,350,000 per annum plus bonus. He says this is low compared with FTSE Directors. Has the world gone crazy??
A good try at doing some analysis, but you are not an expert in this field, have carried out your analysis incorrectly, and I feel it can do more harm than good. It is wrong to take selected items out of the company's balance sheet and present them differently, along with information from a different time point, as you have done.
Northern Rock is solvent (i.e. has more assets than liabilities plus a margin for comfort), as the FSA (who are experts in this area) have stated.
Some of the mortgages that have been securitised or are backing covered bonds will have returned to Northern Rock's balance sheet. It is the repayment of the short term financing that these assets were covering that has caused Northern Rock's short term liquidity problems.
The numbers we have seen retail depositors withdrawing may seem large, but are similar to the amounts of short term financing that NR have had to refinance over the past weeks, the cause of the original problem. They should not be causing Northern Rock to 'panic'.
Could someone tell me - is the maximum compensation is 拢35,000 per account held or per customer?
Reply to Item 142
Please find below details of compensation from the Leeds Building Society Website
Amount of Protection
Under the Scheme, payments are limited to a maximum of 拢31,700, that is 100% of the first 拢2,000 of an investor's total shares and/or deposits in a building society and 90% of the next 拢33,000. The payment is calculated by reference to all the investor's protected shares with, and deposits in, the society. Therefore, for example, if a claimant had two separate accounts with the society, one containing 拢2,000 and the other 拢1,500, he or she would receive 拢3,350 (100% of the first 拢2,000 and 90% of the next 拢1,500).
Anthony wrote:
"Northern Rock is solvent (i.e. has more assets than liabilities plus a margin for comfort), as the FSA (who are experts in this area) have stated."
Yes the FSA are experts in this area - telling us a company is solvent and seeing people's savings evaporate !!
No one can believe this FSA regulator (supposedly independent of Government) - The same FSA who told us in December 2000 that Equitable Life were solvent !!
No 144, The Equitable Life are still and always were solvent and continue to pay their policyholders pensions at least at their guaranteed rate.
No-one's savings have evaporated at Northern Rock. Nor are they likely to.
To post 138.
The borrowing is NOT just for new lending - it is to fund the existing book of mortgages.
NR operates a business model which is often expressed as "borrowing short and lending long". To explain this a little further -
NR uses the commercial markets because a few years ago when it turned into a a bank it wanted to expand fast. The limiting factor when it was a building society was that it could only lend based on the balance sheet provided by the savers funds (its a little more complicated than this - there are things like reserve ratios and capital adequacy that actually limit things) - hence to raise more cash it borrowed on the commercial paper market using the mortgages it had issued as collateral. This "commercial paper" is really just a contract to borrow a fixed amount of money from another bank (which is cash-rich looking to lend the money) for a fixed term at a given interest rate. The interest rate may be fixed, or based on an offset from a given benchmark (for example LIBOR).
The money NR raised on the commercial paper markets is on short to medium term contracts - typically a few months to a few years. NR's commitments to lend are, however, typically the normal mortgages that you are familiar with of 25 years. Therefore every month NR needs to renew (or "roll") its commercial paper borrowing.
The whole issue at present is that NR have been hit by the current freeze up in the credit markets - this has been referred to as the "credit crunch". This has been caused by the excessive "sub-prime" lending in the US. Somewhere out there is at least USD 100 billion in losses (according to Ben Bernanke) - but no-one is quite sure where all those losses are, but we do know that they are your typical home-loan mortgages. As such confidence to lend cash to anyone using mortgages as collateral has dried up and hence NR can't "roll" its commercial paper. We know that NR doesn't lend sub-prime, but that doesn't matter. No banks are prepared to lend at present until the music stops and everyone knows where the losses are.
NR has a very real problem - and its only going to get worse as more and more of the commercial paper borrowing expires and can't be rolled.
But - its lending book is very good. Hence this is likely to end well - most likely with the sale of NR to a cash rich bank that will probably pick up a lot of good business for very little money. The big losers in this are likely to be the NR shareholders - I expect to see the share price plummet further very soon.
Re the question C Eaton raised
the maximum compensation is 拢31,700 on a maximum holding of 拢35,000. That is:
* 100% of 拢2,000
* 90% of the next 拢33,000 (ie a loss of 10%)
What very many people are not clear about is that the compensation applies for one person to all deposits in all accounts of all companies IN ANY ONE GROUP.
Any joint accounts count as one person.
There's a very helpful article on the Daily Telegraph money page about it which I found when trawling around for information. Nobody in the queue I was in on Saturday had ever heard of this condition
Obviously the Governor of the Bank of England in addition to calling me an investor rather than a saver and expecting me to know the ins and outs of all companies in order to reduce risk, now also expects me to know about all the mergers and aquisitions of all financial institutions as well.
When I started to look at the situation overall I had no idea of the extent of companies included in some of the financial conglomerates.
The bottom line is that it makes it very difficult to know how to share your money around and places a completely unfair burden of 'need to know' on any person trying to save or place their pension funds.
The people who trust the official line in these situations should put their money where their mouth is and be forced to deposit their life savings into Northern Rock.
If you have the faintest knowledge about historical financial disasters you would know banks are usually trumpeted as 'solvent' right up until 2hrs before they shut up shop and disappear off to Barbados. The US treasury talked optimism right through the Great Depression. Right now Northern Rock is facing a crisis of confidence which no bank can survive, and instead of recommending people to stick with a sinking ship you would do much better to advise your customers/readers to get out ASAP. Forget BoE's vague promises-the only guarantee is on your first 35000pounds.
Furthermore, what are northern Rock's supposed 'assets'? Might these be the same 130% sub-prime mortgages that every other financial institution has been trying to avoid for the past few months? What makes you think they are actually worth anywhere near as much as is claimed, especially with the slowdown in the housing market that is predicted?
I am an internet customer. I couldn't sleep so I thought I'd see if I could access my account. Its 3:15am Monday morning and I still get the same message:
"Important customer notice Unfortunately, the system is currently very busy.We apologise for any inconvenience caused and ask that you try again later.Thank you for your patience in this matter."
"Very Busy" at 3:15am - I think not. I have been getting this constantly now for a while. I believe that access to Internet accounts are now blocked.
Well done Mr Peston for destroying a perfectly good brand, in your anxiety to get a scoop. I am very surprised that you were able to get access to what I believe should have been confidential, market sensitive discussions between Northern Rock management and the Bank of England. By breaking this story, you have put unknow numbers of jobs in jeopardy - surely not your own - and caused Northern Rock customers to queue around the block anxiously gripping their passbooks. Well done - you should be most proud - initially this was a story about the future profitability of Northern Rock ( they cannot raise money cheaply to lend out at a higher rate, to turn a profit , but your (and I would hasten your bosses, the 成人论坛) desire to be the breaking journalist, have morphed this into a situation about the future solvency of Northern Rock
I agree with Anthony the online account access is 'blocked' and not just a matter of being busy. Has anyone managed to sign in and view there accounts. I think not. This should be investigated by the FSA. Regards Peter
Question Number 2
RE: Where can we find out about the current situation in
Birmingham Midshires Building Society.
regards
prabha
Re the internet access it's 17.53pm on Monday afternoon and the same blocked access messages are appearing despite the reassurances today from Northern Rock management.
I actually had not intended to withdraw monies from my account but the apparent deliberate blocking of access raises fears still further.
Regards
Mike
Re the internet access it's 17.53pm on Monday afternoon and the same blocked access messages are appearing despite the reassurances today from Northern Rock management.
I actually had not intended to withdraw monies from my account but the apparent deliberate blocking of access raises fears still further.
Regards
Mike
This blog symbolises the reason why many of us no longer trust the 成人论坛. "This is the equivalent of the wreck of a city after an earthquake. So where does blame lie for this disaster?" is the sort of posh tabloidism which much of the Corporation's journalists seem to think constitutes challenging analysis. "Who is to blame" reinforces an ugly and self-interested populism which undermines the quality of our public discourse. If this sort of shoddy anti-intellectualism is what modern media require then sadly, I think we need to stop paying for it as if it were a public service. We should certainly object to paying Mr.Peston to regale us with his overstated value judgements. If I wanted those, I could just ask my kids!
I'm fuming at the way Northern Rock treated my father following his recent heart attack. We got in touch with them on the phone and by letter explaining that he'd been taken into hospital and that we'd realised he'd missed a payment while he was being treated. We told them that we were looking into my father's physical and financial status but that for the time being could they refrain from giving him stressful telephone calls and keep any communication to post or email until the crisis period was over. We received a letter from Northern Rock trying to assure us to rest easy at this worrying time, etc. At first it looked really nice of them until we realised it was a grovelling letter to the people who were jumping ship. Later that evening the phone calls started asking for money and warning of charges and interest, totally disregarding our communications with them about this critical period for my father. Absolutely disgusting, I wish them all the bad luck in the world. Of course with the backing of the Bank of England they should be ok for now which is annoying. I personally will be doing everything in my power to let people know what they really think of their customers.