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I hear as part of the announcement that Northern Rock will distribute bonuses to its employees of circa £14.5m. How can this be so? It continues to be loss making and importantly, it doesn't have an investment banking arm, so the usual justifications for paying bonuses do not really apply.

These figures are not too bad, and the losses are a drop in the ocean compared to recent years.
The bonuses also seem to be in the land of reality, thank goodness.
Well done, the Rock.

Money back? From a bank?
The old days are back, cashback and incentives will soon be with us.

Has the bank really survived or will it go back to being a building society? To me the bank caused its own problems by converting in the first place.

> There's even a fighting chance that, as and when that bank has been sold
> and the older mortgages have been paid off, taxpayers could end up
> making a profit on this most fraught of nationalisations.

And will the profit be in real terms, i.e. with interest?
In any case, the former shareholders fell asleep at the wheel and
allowed a bank clerk to run the business. We have to do all we can
to stop the former shareholders getting any of that dough. We
taxpayers took a chance, so we get the upside.

And perhaps we should all be aware that much of the "bonus pool" is used to bring the wages of ordinary branch staff to a decent level.
I've said this before, but extra payments to branch staff should be renamed.....the word "bonus" sends all our blood pressures up as we associate it with City fat-cats.
Call them "productivity payments"....or anything....but not "bonuses".

The rest of the country is rapidly going down the pan, but so reassuring a bank is doing well I must say and it's marvellous to hear it from Rp first.

GC

Just think how much better Northern Rock would have done if their best books had not been sold to J P Morgan, and if their offshore company Granite had been made to pay back their assets.

There was no need to bail out Northern Rock and set an example for the other banks to follow.

Malfeasance at least.

Northern Rock's nationalisation was necessary, but there have been no changes to the way that banks and run or regulated since.

Our politicians and regulators MUST tackle and solve the problem of 'we can regulate nationally, but the banks are international so we must get agreement first' - THIS INTERNATIONAL AGREEMENT WILL NOT COME and we must face this. Further, even if there is agreement there will be no way to enforce such agreement as there is absolutely no possibility of there being an international body capable of enforcement or applying sanctions.

I am therefore drawn to the conclusion that we must enforce national regulation without agreement. If we don't then further collapse will happen and we have been warned!

A bit optimistic to expect us to make a profit considering the poor quality of NR's lending.

And L Myners didn't help by stating the obvious with no real solution.

Banking has always been a risky business. The appearance is that banks are substantial, stable institutions. The reality is that they are complicated large organisations which are only as good as the quality of their lending.

They have become so big as to be a threat to economic stability in the Western world, in that if support is not given on a substantial failure there is a danger of a failure of the monetary system, possibly leading to anarchy.

The problem arose primarily due to poor lending decisions in respect of:

(a) Property
Money was lent on too great a percentage of inflated values.
This was driven by the bonus culture which encouraged staff to secure a deal even where the security was highly questionable, and led to the position where borrowers are considered more valuable than depositors. It led to inflationary and increasing property values which then appeared to justify the risky lending decisions, and the security then appeared adequate.

(b) Bonds and other financial instruments.
Money was lent/invested on instruments which are so complicated that the risks were not understood. The AAA rating of these instruments was often questionable bearing in mind that the banks were paying the people who assessed them as triple A. A major portion of the underlying value of these investments is based on property, but no one was realistically able to quantify the risk, simply relying on the AAA rating. When it became clear that these investments did not have the security which had been anticipated, and indeed no one was quite sure what security was in them due to their complexity, the banks quite properly stopped dealing in them but this stopped interbank dealing and meant that credit dried up, and this precipitated the crisis.
The bonus culture contributed to the use of these instruments but another major advantage for the issuers is the high commissions earned from setting up such complicated investments.

At present the government is printing money (quantitative easing) but at the end of the day someone has to pay.

Governments need to protect their public's money from being at such risk. In the US there are restrictions on banks, based on location, so that in theory they cannot become too large, but that did not prevent them suffering from the crisis. It was not just the major banks which suffered, though most not as badly as NR.

The risk needs to be shifted from the economy to the investors in the banks. Although governments may charge for the insurance they have guaranteed to the banks, it cannot be at a commercial rate as it would in itself be so costly that the bank would be unable to pay the cost and would fail. In effect the public have been left with a risk for which there is no benefit except the protection of the monetary system.

The solution. (I can solve the world's problems but no one listens to me.)
In my view the banks should be split into:

(a) Lending and customer service operations;
Lending on property, and to business.
Banking services where the risks are taken by the customer eg investment portfolio management.
There should be a clear division between the customer's funds and that of the bank so in the event of failure the customer's funds are safe.
There needs to be capital adequacy to cover depositors.
The sale of mortgages or bundles of them to third parties should be banned.
Staff are rewarded primarily by salary with perhaps minimal commission. Loyalty and success is rewarded by seniority leading to long term career patterns. (Old fashioned I know but it used to work.)

(b) Other risk operations where the banks make profits for themselves.
Little regulation for this section except on the amount of risk the operation is allowed, so that in the event of failure of this part, and of similar parts of the other banks in the UK at the same time, the result would not be overwhelming on the monetary system.

In both sections the profits go to the shareholders; the risks and rewards for part (b) being much higher. Regulation is needed to make sure that the risk to the public purse for either section does not become too great, and this may mean restricting takeovers.

James Morely (comment No 1), I'm wondering if you read the bonus figure correctly? £14.5 million?

As you say, no investment banking arm, so it's safe to assume that a fair part of this will have been paid to the retail staff who will have spent most of the the last 2 year not knowing if they had a job, and being faced with worried and stressed customers who frequently think no further than the latest hysterical newspaper headlines.

Step off the "Bash the bank bonuses" bandwagon for a moment and pause for thought as to whom you are judging. These people will have worked very hard for their modest bonuses.

Robert,

If the bank has really improved to the extent which is reported, why can't we taxpayers keep it? Why do we need to sell it?

Alistair Darling insists he doesn't want to be a banker but surely he can't do a worse job than Goodwin, et al...?

Why can't we keep NR, RBS etc? Wouldn't we eventually make a profit every year?

Or is it a case of sell it quick before the next big crash comes?

'In formal accounting or statutory terms, it actually made a profit in the second half of 2009'

Are these the same accountants that signed off a £10 billion Group profit in 2007 ? Forgive me if i am somewhat skeptical.

What is the position of the former Northern Rock shareholders? Will their old holdings have any value or will they get compensation?

Bonuses here are a joke, where would they have been without Government support and the unfair advantage gained from the 100% guarantee on savings? Also, this is applicable to all banks, why do they not return to the days of "profit sharing", the clue is in the name, your employer makes a profit, you get to share in it. They make a loss, you keep your job, simple.

In relation to this

Creating a post recession; what steps should the EU take to reform the banking sector?

i need help with this

Kindly

Tom

Are we any further forward from socialising the debts and risks but privatising the long term profits and the government may get a little 'windfall' if it is lucky. The opportunity is to build a strong state banking sector at least pour encourager les autres!

Not too surprising given that our reckless monetary policy has reflated the housing bubble is it?

"...There's even a fighting chance that, as and when that bank has been sold and the older mortgages have been paid off, taxpayers could end up making a profit on this most fraught of nationalisations."

Are you serious?

Please wake up from your reverie. We are not in a real world, but an illusory one. The economy is being artificially propped up by government spending in place of credit-led consumption. At some point the tap will be turned off - not because they want to, but because they have to, as markets will force their hand with a run on the pound. This will lead to hiked up interest rates, leading to mass housing repossessions, business collapses and multiple job losses.

The flaw in our politicians thinking is that they assume that a recovery will happen without understanding that the whole nature of our economic system is based on the UK, US, Spain and Ireland spending money they don't have buying goods that Japan, China, India and Germany produce. Without a return to these policies, which of course is what led to the credit crunch in the first place, the whole thing tanks.

Northern Rock, like most banks, is on borrowed time. As and when reality kicks in they will collapse.

It is rather like stuffing a bursting dam with paper mache. At some point the waters will burst forth and there is nothing they can do about it.

meanwhile the Pound is free-falling without a parachute and any 'gains'... will be only as worth as the paper they're written on... thankfuly, that will apply to bonusses too... a 1,000 times zilch is still zilch... whoooopeeee! what a bunch of bankers....

10.
Understand your point regarding front line staff – we all know they’re being led by donkeys.
Unfortunately it would appear that in order to compete in the new economic world order ( multiple posts by Susan something on other threads), ordinary people must bear the brunt of any economic hardship, take pay cuts, lose jobs, accept ever worsening conditions etc etc. Many people have already lost their jobs so worrying about other peoples’ bonuses may to them not be seen as that high a priority. Many more job losses seems a likely prospect.
Whilst reasonable people may appreciate the implications of the rapidly emerging economies, many will undoubtedly resent the all too evident double standards seen in the treatment of the banks’ investment ‘talent’. Nor does it seem likely that this will change regardless of who gets in. I believe the same blogger suggested that bankers were worried about George Osbourne! (I understand the worry bit but not the bankers).
Why, what’s he going to do? – give them a jolly stiff talking to before they saddle up and play polo together? ! I think there was some talk of dismantling one monitoring body and replacing it with another, but really….. the Conservatives getting to grips with those ‘doing god’s work’ - it’s fanciful!
I’m not at all sure how our European cousins in Germany and France are going to manage with their relatively restrictive employment legislation – perhaps they’re not totally reliant upon a shambolic self serving financial services sector!

# 13. At 09:24am on 10 Mar 2010, Screechers wrote:

> What is the position of the former Northern Rock shareholders? Will
> their old holdings have any value or will they get compensation?

No. They fell asleep, and moral hazard says they should be
stripped of thier money. If you snooze, you loose.

15. At 09:30am on 10 Mar 2010, tom dilk wrote:
In relation to this
Creating a post recession; what steps should the EU take to reform the banking sector? i need help with this

Heres my suggestion. Put anyone connected with the old investment banking regime up against a wall.
Oh no we can't can we. They are still running the country.

...am confused - does the 383m loss for 2009 directly compare with the 1.3bn loss for 2008, particularly as "The bank has now been split in two.." ?

Which bit or bits do the 383m and 1.3bn represent, the small retail bit ? the 50bn mortgage bit ? Granite ? some or all of the them ?

And whilst we're on the topic - where are the Bradford & Bingley mortgages currently held ?

At 10:03am on 10 Mar 2010, Jacques Cartier wrote:

# 13. At 09:24am on 10 Mar 2010, Screechers wrote:

> What is the position of the former Northern Rock shareholders? Will
> their old holdings have any value or will they get compensation?

No. They fell asleep, and moral hazard says they should be
stripped of thier money. If you snooze, you loose.


Agreed Jacques BUT NR was nationalised so politically the shareholders must be given some recompense - just think of all those votes.

Perhaps instead of giving out bonuses Northern Rock could compensate some of the people it screwed over in the past year!

My partner and I are attempting in vein to buy our first property. Because our budget is not much, and we work in an expensive area, repossessed properties were appealing to us. We say a flat we loved and made an offer that was accepted. Northern Rock were the mortgagee in possession. We were warned that the bank had a duty to get the highest price for the property. We did have to up the price shortly later to asking price because there was another offer on the property but then we were assured time after time that because we were at asking price we were safe. A week later we were asked to up it by another £10k which we did as we were only days away from exchange. The following five days in a row the bank came to us for more money which we refused. They said they had a cash buyer who didnt want any checks or searches and could exchange and complete the say their offer was accepted (our solicitor told us that was not possible). We had everything we needed to exchange except a fire safety certificate which northern rocks solicitors delayed handing over. The bank then had a change of hear and said we could exchange if we exchange by the end of the week (this was at 14:30 on a Friday!!!). We tried to exchange first thing on the monday but told not to bother, they had a higher offer.

I investigated after and found that Northern Rocks excuses for all the bother is that we had missed several dates we had agreed to complete on, none of which we had agreed to and someone within Northern Rock or their solicitors, had been agreeing to dates on our behalf.

This property cost us thousands and an enormous amount to stress and upset. The property eventually sold a month later (the all singing all dancing cash buyer turned out to be fictional).

So well done Northern Rock, you've had a slightly better year at the cost the little man AND you've congratulated this behavior with bonuses!

Idiom Definitions for 'Flogging a dead horse'
If someone is trying to convince people to do or feel something without any hope of succeeding, they're flogging a dead horse. This is used when someone is trying to raise interest in an issue that no-one supports anymore; beating a dead horse will not make it do any more work.

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#3 Your little note caught my eye, I used to get money back from Sainsbury's on my switch...it meant I was over my limit & couldn't get cash elsewhere. Wonder if that is true for us tax payers...?

RP "But there were a couple of big one-off credits that flattered the bank - including a refund of £350m of supposedly penal interest rate charges levied by the Treasury, following approval of the Rock's rescue by the European Commission"


Is that the same penal interest rate that we want from Iceland?

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