Northern Rock gets bank bail out

God, everyone seems to be in full-on headless chicken mode.

NR customers - your money ISN'T IN ANY DANGER*

This isn't a case of NR running out of dosh, it's a case of everyone who would normally bung them a huge wedge of money (and ALL banks borrow and lend billions on a regular basis) suddenly stopping lending to anyone, forcing them to goto the BoE.


*well, it wasn't until the media whipped everyone into a needless panic and sent everyone scurrying to withdraw their savings.
 
Northern Rock shares down 31% on the day now.

It will be interesting to see where things are in a couple of weeks.
If NR have to rely on the government's punitive rate for money for a while then that will hurt them big time.
 
Haircut said:
More to do with the fact that because of the recent subprime crisis and the fact that Northern Rock have a significant amount of subprime business none of the other banks want to lend them money so they have to go to the BoE to get it.

After big losses today it doesn't look like tomorrow will be any better on the stockmarket for them!
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If I had the money I'd be buying LOTS of Nothern Rock shares. This is all about liquidity as has been pointed out by other members, not the fact the business is unviable. This is temporary shock, if you're a risk taker this is the perfect oppertunity to make some serious money.

Davem
 
What an absolute mess, the media need to stop dramatising it and do their job, if they keep making people believe that banks have no money then the resulting recession would hurt their industry as much as anyones.

The funny thing is the more people take savings out of NR, the more trouble it puts the company and national economy in.
 
Haircut said:
Northern Rock shares down 31% on the day now.

It will be interesting to see where things are in a couple of weeks.
If NR have to rely on the government's punitive rate for money for a while then that will hurt them big time.
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Yeah it was 23% now its 31%

I presume people who are failing to meet payments will get a kick up the backside now and have the debt collectors knocking, I mean if you lent someone some money and they said yes I agree to that then default and say they cant afford.
 
Northern Rock right now have no business model to speak of so their shares are pretty much worthless. They effectively have no cash to continue offering mortgages.

Their business model consited mostly of borrowing at Libor rates and loaning at Libor+a bit. Now libor rates have gone up they can't compete against other lenders who can tap their savers capitol to offer loans, and who would lend them money at any rate when the blue rinse brigade are queuing round the block to get their savings back.
 
bottletop said:
Northern Rock right now have no business model to speak of so their shares are pretty much worthless. They effectively have no cash to continue offering mortgages.

Their business model consited mostly of borrowing at Libor rates and loaning at Libor+a bit. Now libor rates have gone up they can't compete against other lenders who can tap their savers capitol to offer loans, and who would lend them money at any rate when the blue rinse brigade are queuing round the block to get their savings back.
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That's simply wrong, the WHOLE POINT of the BoE stepping in is that they are sure that the business model of Northern Rock is a viable one, or they wouldn't been lending them money in the first place!!

The BoE are there to protect the economy during period of market uncertainty that is exactly what they are doing.

This is nothing to do with a bad business model (well it lacks robust cont planning). In fact Northern Rock's business plan is a very sound one.

Markets experiance short bursts of transient liquidity problems. It happens, it's a known fact, it doesn't mean the Northern Rock are going to go bankrupt:rolleyes:

Jesus its a good job some of you aren't investment bankers! Nevermind working at the BoE:eek::p
 
DAVEM said:
If I had the money I'd be buying LOTS of Nothern Rock shares. This is all about liquidity as has been pointed out by other members, not the fact the business is unviable. This is temporary shock, if you're a risk taker this is the perfect oppertunity to make some serious money.

Davem
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The thing is NR rely on the capital markets to provide the majority of their liquidity.
At the moment they're relying on the BoE as a lender of last resort. I would guess that the rate will be somewhat north of 7% given what the 3 month LIBOR is at present.

So, if they carry on like that for any significant length of time (and what has happened recently certainly won't make other banks more likely to lend to them) then they end up where they are losing money as their mortgages are costing them money relative to the rate at which they can source it.
They're left with the choice of trying to sit it out (however long that may take) or up the rates on their loans.
This is what the problem is, if everything calmed down and the LIBOR went back down to near base rate levels soon then they would be fine.

What will actually happen is another matter though.
 
Haircut said:
The thing is NR rely on the capital markets to provide the majority of their liquidity.
At the moment they're relying on the BoE as a lender of last resort. I would guess that the rate will be somewhat north of 7% given what the 3 month LIBOR is at present.

So, if they carry on like that for any significant length of time (and what has happened recently certainly won't make other banks more likely to lend to them) then they end up where they are losing money as their mortgages are costing them money relative to the rate at which they can source it.
They're left with the choice of trying to sit it out (however long that may take) or up the rates on their loans.
This is what the problem is, if everything calmed down and the LIBOR went back down to near base rate levels soon then they would be fine.

What will actually happen is another matter though.
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The evidence the capital markets will calm down is evident from the extensive literature studying capital markets in the econometrics domain.

Shocks such as sub-prime lending problems are most likely a transient problem. The only way there would be "long memory" (persistance) would be if the sub-prime problems are a reflection of a much bigger problem.

In fianancial data, the persistance of shocks has been debated for decades. But I'd argue that there is a full consensus that for persistance to extend to a period of over 3 months is often unlikely and only occurs when the "shock" itself is VERY significant (Think stock market crash / internet bubble burst).

The most likely outcome for Northern Rock is that it will be purchased by a rival (taking advantage of the massive share price drop), and getting a bargain in the process.

Davem
 
Wish I had some spare cash at the moment - I'd snapup as many NR shares as possible - they're majorly undervalued at the moment.

However, all these customers withdrawing their money is compounding the problem a little, so until people realise they're being silly sheep and put it back, the shares will probably dip a bit more.

Reminds me of the Arthur Hailey book, The Money Changers. In an attempt to stop a run like that, they got in as much cash as possible, and basically had it on display - "See, plenty of money, sure you want to withdraw it?".

Shame out of the fiction world that wouldn't work - that much cash for the hundreds of branches would suck up a lot of supply, and then they'd get robbed five times a day :D
 
Hopefully the **** running up debt way beyond what they can afford will learn a very important lesson, the hard way. I agree with Bill, banks are responsible for giving them cash in the first place.

*looks at housing prices*

You gotta love it :rolleyes:
 
i went to see my financial adviser today as i am currently changing mortgage lenders as my 3 year fixed rate expired with Northern rock, good timing for me as I've changed to Bristol and west.

He did say that the money thing for NR isn't to serious and that it wouldn't affect mortgage owners but it may affects people with saving account with them.
 
cheets64 said:
I presume its down to people not being able to pay back loans and mortgages due to a lavish lifestyle and the fact everybody is lending and interest rates have gone up and up.

I have a loan with them :eek: never missed a repayment yet.
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Great, more control for the world bank. (own BoE and FR)
 
Haircut said:
The thing is NR rely on the capital markets to provide the majority of their liquidity.
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Not the majority.

There are limits imposed by the FSA on the % of liquidity which can come from the wholesale markets. As the UK government has "outsourced" management of the markets to the FSA, those FSA limits are legal maximums.

You'll find that the % of funds that come from the wholesale side is more like 30 to 40% tops
 
I work for Northern Rock, Massive agenda to make sure every member of staff knew what was going on, and I must say I feel very reassured. We have 9billion to play with (Borrowing 3bn from the Bank of England). My father and his partner have just purchased 10,000 worth of Northern Rock shares each.

The story is big there’s no doubt about that, but it’s a sensible option and Adam Applegarth has made the right one. It’s a matter of seeing out the storm and I won’t be selling my shares or removing my money from the company.
 
silly sheep :) thats all i can say,

although if i had some spare cash(well large amount) i'd be buy buy buying NR shares by the bucket load
 
andy@moFo said:
My father and his partner have just purchased 10,000 worth of Northern Rock shares each.
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Debatable if it is the best time to buy with the media frenzy going on and people still taking all of their money out. As people get online to their online baking they are transfering it all out.

I'd not want to have £90k worth of NR shares at this point (unless shorting!)

That's a bold move. If they drop another £1 on Monday that could be a 20k loss and an anxious wait until they come back up.
 
I would not want to be buying NR Shares right now!

These are going to continue to fall next week in the fallout of all this media frenzy, due to short positions, and forced sales (stops and geared investors- i.e. those that spreadbet/ buy CFDs).

The shares are reasonably good value now, yes, but the market is not always very rational.... I know through experience.
 
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