Bank Of England To Bail Out British Bank

[lannarebirth]

I wonder what A&L's official response the the question of "why are you offering offshore depositors a rate of up to 45bp above the current base rate ?" would be. It won't take much for comparisons between A&L and NR to become a self fullfilling prophecy.

In fact some offshore UK banks are now offering a premium of up to 1.10bp over base including Nationwide, International Bank of Scotland and A&L and these accounts will be of prime interest to Thai based UK ex-pats because of their tax free status and high returns. I invest in products with these lenders and take the view that if names as strong as the ones I mention go under then everything is going to collapse and there will be no need for money so why worry.

Wow! That's an interesting approach to the matter. I take the view that the higher the interest paid, the more difficult it is for the lender to attract investors and the more currency risk there shall be. If you know anything about bonds (junk , emerging market, etc) I think you'd agree.

"They say that more money has been lost chasing yield than in any other area of investing." Richard Russell

Edited September 18, 2007 by lannarebirth

[Naam]

Moody's may change Northern Rock credit rating

LaoPo[/color]

"may" change =

[chiang mai]

Another aspect of all of this is the effect that it is having on Sterling (see link below). With the Fed preparing to cut base rates soon that will further weaken the currency - all of this against the backdrop of Alan Greenspan's widely circulated interview in the Telegraph where he said that UK borrowers were in for a lot more pain and that the fallout from sub-prime would hit the UK harder than the US.

http://newsvote.bbc.co.uk/2/shared/fds/hi/.../12/default.stm

[Carmine6]

I wonder what A&L's official response the the question of "why are you offering offshore depositors a rate of up to 45bp above the current base rate ?" would be. It won't take much for comparisons between A&L and NR to become a self fullfilling prophecy.

Extraordinary situation that there's all kinds of doubt about institutions in the UK. Contrast what's happened with Countrywide with Northern Rock.

Countrywide, the #1 US lender did do subprime loans. They rely almost exclusively on the credit markets for funds to lend and almost no deposits. They've received a total of $25.5 billion in funding from banks, most of which has been drawn on. The Fed had gone out of their way to portray their position as lender of last resort as not being the end of the world. They added liquidity to the market by the bucketload. Countrywide's stock is roughly flat since they first drew down their credit line. Their loan volume is reduced but still about 80% of their prior volume. Sure to shrink over time, but enough time to orderly find a buyer or shrink down and wait for the credit markets to free up again. Small lenders have gone under with hardly a mention.

Northern Rock, the #5 UK lender did not do subprime loans. They rely heavily on the credit markets for funds to lend and somewhat on deposits. They received a guarantee for £31.5 billion, or $63 billion from the BoE. More than twice as much as Countrwide and this credit line had not even been drawn on as of yesterday. The BoE in contrast to the Fed had basically pointed out how rarely it helped banks, meaning of course the situation would have to be bad to do so. They had not added liquidity to the financial markets as was done in the US and Europe. So now there's a big distrust in what they say. In just 3 days, NR is having to scramble to possibly look for a white knight to take them over. And there's speculation about other UK lenders being next.

The BoE has really messed this up. Depositors have been inconvenienced, shareholders have taken a huge hit, and now employees may end up on the streets. This shouldn't happen to an organization that is a fraction the size of Countrywide and that was provided a much larger funding commitment. While they likely would have been taken over at some point, it's looking like a fire sale now.

[lannarebirth]

Another aspect of all of this is the effect that it is having on Sterling (see link below). With the Fed preparing to cut base rates soon that will further weaken the currency - all of this against the backdrop of Alan Greenspan's widely circulated interview in the Telegraph where he said that UK borrowers were in for a lot more pain and that the fallout from sub-prime would hit the UK harder than the US.

http://newsvote.bbc.co.uk/2/shared/fds/hi/.../12/default.stm

Why would you attribute Northern Rocks troubles to fallout from sub-prime and not their business model? It seems evident to me, they suffer from poor risk management.

[R123]

Does anyone know if Alliance and Leicester or Anglo Irish is in trouble and may go the way of Northern ©rock?!

Many thanks.

[chiang mai]

Another aspect of all of this is the effect that it is having on Sterling (see link below). With the Fed preparing to cut base rates soon that will further weaken the currency - all of this against the backdrop of Alan Greenspan's widely circulated interview in the Telegraph where he said that UK borrowers were in for a lot more pain and that the fallout from sub-prime would hit the UK harder than the US.

http://newsvote.bbc.co.uk/2/shared/fds/hi/.../12/default.stm

Why would you attribute Northern Rocks troubles to fallout from sub-prime and not their business model? It seems evident to me, they suffer from poor risk management.

Agreed that the real cause of NR's problems lays in its business model but the catalyst that has made others scrutinise that model is the worry of what has happened in the sub-prime debacle. I think it's one of those cases where it's business as usual as long as everything is fine, no matter how imbalanced individual business models may be, but, when an event occurs that causes folks to examine institutions operating methods more closely, watch out. Case in point is A & L currently. They have a strong name and a strong balance sheet yet their shares are losing massively. Why, because today someone thinks their business model may not be up to scratch whereas "yesterday" it was just fine. It's all a bit of a witch hunt.

[chiang mai]

Does anyone know if Alliance and Leicester or Anglo Irish is in trouble and may go the way of Northern ©rock?!

Many thanks.

We depositors hope not. Best not to get too excited and just follow events closely.

[chiang mai]

I wonder what A&L's official response the the question of "why are you offering offshore depositors a rate of up to 45bp above the current base rate ?" would be. It won't take much for comparisons between A&L and NR to become a self fullfilling prophecy.

In fact some offshore UK banks are now offering a premium of up to 1.10bp over base including Nationwide, International Bank of Scotland and A&L and these accounts will be of prime interest to Thai based UK ex-pats because of their tax free status and high returns. I invest in products with these lenders and take the view that if names as strong as the ones I mention go under then everything is going to collapse and there will be no need for money so why worry.

Wow! That's an interesting approach to the matter. I take the view that the higher the interest paid, the more difficult it is for the lender to attract investors and the more currency risk there shall be. If you know anything about bonds (junk , emerging market, etc) I think you'd agree.

"They say that more money has been lost chasing yield than in any other area of investing." Richard Russell

If we were talking corporate bonds or listed stocks I would agree. But since we are talking about guaranteed (Depositor Insurance) secure deposits in the top seven UK banks I do not.

[highdiver]

Almost 20 per cent of the short-term money market loans issued by European banks are due to mature between September 11 and September 19. Senior bankers fear that they will have to refinance almost all of these debts with funds from their own coffers, putting a further strain on bank balance sheets.

Tens of billions of pounds of these commercial paper loans have already built up in the financial system, because fear-ridden investors no longer want to buy them. Roughly £23bn of these loans expire on September 17 alone.

Fears of this impending call on bank credit lines are the true reason that lending between banks has ground to a halt.

Britain's biggest banks could be forced to cough up as much as £70bn over the next few days.

Banks have been stockpiling cash in preparation for this "double rollover" week, which sees quarterly loans expire alongside shorter term debts - exacerbating a problem that lies at the heart of the credit crisis.

[Carmine6]

Does anyone know if Alliance and Leicester or Anglo Irish is in trouble and may go the way of Northern ©rock?!

Many thanks.

We depositors hope not. Best not to get too excited and just follow events closely.

The BoE guaranteed the deposits of Northern Rock and their stock is up 10%. Alliance and Leicester stock popped back over 20%. So, although the BoE didn't want to bail out those who made bad decisions, the taxpayers will be on the hook for just about any depositors if a bank goes under. Bit of a mess for them. At what point will they lift that guarantee?

http://www.cnbc.com/id/20827521

[A_Traveller]

This is starting to look like a policy shift by the UK authorities. The traditional position has been that a sliding scale deposit protection existed, most recently under EU regs. Now they appear to want to move to a model more closely based on the US one, and expand it to all institutions. Being outside the Euro zone makes that practical but back-tracks on the moral hazard issue. So as of today (?) all banking deposits held in UK institutions may be 100% protected irrespective of the level of risk/return? That makes no sense to me at all, in that scenario as opposed to ensuring protection for Mr & Ms. Smith {the goal} with their saving plan, the multi-currency asset manager could use the scheme to shore up risky transactions on the basis of failure is no longer an option {Apologies to Gene Kranz}.

The old saying legislate at speed ... , springs to mind. My guess here would be for a short period all deposits will be guaranteed but, for example, a sliding scale would need to be designed to reduce payment based on risk. It should be noted here that as far as recall, though i don't live there now, NR's savings plans were not excessively generous compared to others, so at this level moral hazard isn't an issue.

I recall being told that I was in error when I described NR as 'the safest in the world' as I think I put it, and as I said then, the political aspect to this should and must not be overlooked.

Regards

[chiang mai]

An interesting quote today from the Head of Charcol in the UK which reads, "But the quality of their loan book is better than average, with the number of mortgages 3 months or more in arrears only half the industry average". In light of that fact and in light of the fact that the BOE is prepared to offer guarantees on NR's performance, is there still anyone out there who thinks that Northern Rock is anything other than a sound profitable business that has been "had" by the media and the lemmings in its customer base?

[A_Traveller]

I do think that NR contributed to the situation by increasing their business earlier this year when there were concerns being voiced about aspects of the UK property market. the other issue which in the particular singles out NR is it dependence on commercial paper based funding, as opposed to other banks {and previous 'mutuals'} which use their branch networks to generate a substantive internal funding base.

Regards

PS However I do agree that there has been a loss of clarity here, the loan book is strong, but when the FT uses the term bail-out {technically incorrectly} then neutral reporting seems unlikely.

Edited September 18, 2007 by A_Traveller

[highdiver]

Does anyone know if Alliance and Leicester or Anglo Irish is in trouble and may go the way of Northern ©rock?!

Many thanks.

We depositors hope not. Best not to get too excited and just follow events closely.

The BoE guaranteed the deposits of Northern Rock and their stock is up 10%. Alliance and Leicester stock popped back over 20%. So, although the BoE didn't want to bail out those who made bad decisions, the taxpayers will be on the hook for just about any depositors if a bank goes under. Bit of a mess for them. At what point will they lift that guarantee?

http://www.cnbc.com/id/20827521

the age of NO responsibilty.

those banks that gave NINJA loans attemting to get a high yield and those that bought the debt from them took a gamble..and now he public has to rescue them???

if this goes on the bubble will inflate again... and the next time it will be more severe.

[Journalist]

I recall being told that I was in error when I described NR as 'the safest in the world' as I think I put it, and as I said then, the political aspect to this should and must not be overlooked.

Regards

You are just focussing narrowly on depositors.

But shareholders and NR employees are also parties with vested interests. A sale of the NR loan portfolio would see huge job losses there.'Synergies' is the m&A code word used !

[A_Traveller]

I recall being told that I was in error when I described NR as 'the safest in the world' as I think I put it, and as I said then, the political aspect to this should and must not be overlooked.

Regards

You are just focussing narrowly on depositors.

But shareholders and NR employees are also parties with vested interests. A sale of the NR loan portfolio would see huge job losses there.'Synergies' is the m&A code word used !

I make no apology for that focus, other stakeholders, such as shareholders have made a series of analytical decisions, as I commented NR was/is not an excessive high risk profile {for depositors} compared to other institutions, hence the argument being made by the Chancellor re depositors. As to staff, their position will be subject to, as you say synergies, though, if I recall, NR has a relativity small {by market comparison} team, so it is to be hoped that such changes would not be too great {except at the top where the responsibility in business planning resides}.

Regards

Edited September 18, 2007 by A_Traveller

[LaoPo]

Northern Rock, Rivals' Shares Rise on State Guarantee

Sept. 18 (Bloomberg) -- Northern Rock Plc, the U.K. mortgage lender that sought an emergency bailout last week, rose in London trading after the government stepped in to stop a run on the bank.

Shares of Newcastle, England-based Northern Rock rose 9.6 percent to 309.75 pence as of 9:10 a.m. after falling 56 percent in the past two days. Rival Alliance & Leicester Plc, which fell the most in a decade yesterday, gained 26 percent to 753.5 pence and Bradford & Bingley Plc was up 5.8 percent to 295.25 pence.

Continues here:

http://www.bloomberg.com/apps/news?pid=206...&refer=news

and:

Northern Rock worries soothed

LONDON (Reuters) - Shares in mortgage bank Northern Rock rebounded on Tuesday after the government pledged to guarantee deposits, calming fears over the bank's funding problems sparked by a global credit crunch.

Northern Rock shares, which had more than halved in value since Friday, rose more than 10 percent in early trade, as the government's measures offered reassurance after the worst run on a major bank's savings in recent memory.

Queues formed at branches of Northern Rock again early on Tuesday, but lines were significantly shorter than on Friday, Saturday and Monday.

Continues here:

http://investing.reuters.co.uk/news/articl...RTHERN-ROCK.xml

LaoPo

[lannarebirth]

Wow, risk free investment! Why not offer higher deposit rates then?

[chiang mai]

From now on would everyone please mention the word Thailand somewhere in their post before someone gets upset and complains this thread has nothing to do with this country and the Mods, wonderful, talented people that they are, decide to close it.

[cclub75]

From now on would everyone please mention the word Thailand somewhere in their post before someone gets upset and complains this thread has nothing to do with this country and the Mods, wonderful, talented people that they are, decide to close it.

Okay, I would risk myself to do it : Does the "Northern Event" announces a closure of... TMB in Thailand ?

Because there is a link... Political intervention.

The "bailout" of Northern (with the guarantee of the State) is purely political. It's scandalous.

Gordon Brown doesn't want to have a bankruptcy on his hands...

But still, it sends wrong and contradictory messages all over the place. It's a huge "bonus" to all the wrongdoers.

Edited September 18, 2007 by cclub75

[cclub75]

Knock knock... who is coming back ?

Northern Rock.

They have borrowed... 10 billions USD more (Financial Times)

But everything is okay. Of course. And as usual.

Northern Rock debt to Bank now £8bn

By Chris Giles, Peter Thal Larsen and Gillian Tett

Published: September 28 2007 03:00 | Last updated: September 28 2007 03:00

Northern Rock borrowed another £5bn from the Bank of England, it emerged yesterday, bringing its indebtedness to the central bank close to £8bn since it was given access to emergency funds nearly two weeks ago.

The Financial Times has also learned that Northern Rock last week distributed almost £40m in dividends to holders of preference shares, issued to maintain capital ratios just two days before the bank cancelled its interim dividend to ordinary shareholders, saving about £60m.

People close to Northern Rock said that while the bank had the option of deferring the dividends on the preference shares, payable each September 21, it would have had to give three weeks' notice.

The extent of Northern Rock's financing crisis - it has now borrowed the equivalent of a third of its retail deposits at the end of June - is raising fresh concerns about its viability.

[sonicdragon]

Apparently private equity firms a queuing up to buy NR

[lannarebirth]

Meanwhile, on the other side of the pond....

http://jameshowardkunstler.typepad.com/clusterfu ck_nation/

Edited September 28, 2007 by lannarebirth

[sonicdragon]

Meanwhile, on the other side of the pond....

http://jameshowardkunstler.typepad.com/clusterfu ck_nation/

Isn't he the guy who predicted a 4,000 dow for 2006 ?

[Carmine6]

Meanwhile, on the other side of the pond....

http://jameshowardkunstler.typepad.com/clusterfu ck_nation/

Isn't he the guy who predicted a 4,000 dow for 2006 ?

Biography

I'm the author of "The Geography of Nowhere," "Home From Nowhere," "The City in Mind," and nine novels, including most recently "Maggie Darling, a Modern Romance," published in January 2004.

I live in Saratoga Springs, New York.

(Mailing address: PO Box 193, Saratoga Springs, NY 12866)

I was born in New York City, grew up in Manhattan, attended the High School of Music & Art (1966) and then went off to college upstate at SUNY Brockport, where I majored in Theater (1971)

I was a reporter for several daily newspapers and an editor at Rolling Stone Magazine in the early days. I dropped out of the salaried world to write books in 1975, and moved to Saratoga in 1976 where I remain happily.

Interests

Painting, cooking, violin, flyfishing

Gee, with a resume like that, how can I not take his economic warnings seriously.

[sonicdragon]

Meanwhile, on the other side of the pond....

http://jameshowardkunstler.typepad.com/clusterfu ck_nation/

Isn't he the guy who predicted a 4,000 dow for 2006 ?

Biography

I'm the author of "The Geography of Nowhere," "Home From Nowhere," "The City in Mind," and nine novels, including most recently "Maggie Darling, a Modern Romance," published in January 2004.

I live in Saratoga Springs, New York.

(Mailing address: PO Box 193, Saratoga Springs, NY 12866)

I was born in New York City, grew up in Manhattan, attended the High School of Music & Art (1966) and then went off to college upstate at SUNY Brockport, where I majored in Theater (1971)

I was a reporter for several daily newspapers and an editor at Rolling Stone Magazine in the early days. I dropped out of the salaried world to write books in 1975, and moved to Saratoga in 1976 where I remain happily.

Interests

Painting, cooking, violin, flyfishing

Gee, with a resume like that, how can I not take his economic warnings seriously.

I found his blog to be mildy amusing initially - I like a little humour in economics where I can get it - but after about 5 mins you get the impression that he's some kind of fanatic. I don't mind his lack of economics training - after all some of the most well-educated and experienced economists have completely divergent opinions and economists as a group can't agree on even some of the the most basic ideas.

Edited September 29, 2007 by sonicdragon

[lannarebirth]

Meanwhile, on the other side of the pond....

http://jameshowardkunstler.typepad.com/clusterfu ck_nation/

Isn't he the guy who predicted a 4,000 dow for 2006 ?

Biography

I'm the author of "The Geography of Nowhere," "Home From Nowhere," "The City in Mind," and nine novels, including most recently "Maggie Darling, a Modern Romance," published in January 2004.

I live in Saratoga Springs, New York.

(Mailing address: PO Box 193, Saratoga Springs, NY 12866)

I was born in New York City, grew up in Manhattan, attended the High School of Music & Art (1966) and then went off to college upstate at SUNY Brockport, where I majored in Theater (1971)

I was a reporter for several daily newspapers and an editor at Rolling Stone Magazine in the early days. I dropped out of the salaried world to write books in 1975, and moved to Saratoga in 1976 where I remain happily.

Interests

Painting, cooking, violin, flyfishing

Gee, with a resume like that, how can I not take his economic warnings seriously.

I found his blog to be mildy amusing initially - I like a little humour in economics where I can get it - but after about 5 mins you get the impression that he's some kind of fanatic. I don't mind his lack of economics training - after all some of the most well-educated and experienced economists have completely divergent opinions and economists as a group can't agree on even some of the the most basic ideas.

I just thought cluster###### was an apt description of how economics is conducted these days.

Lots of people with great looking CV's were telling people "this time it's different" not many years ago. Just before they lost 7 trillion dollars in paper wealth. I don't watch TV, but I don't imagine the enablers of the current property bubble behaved much differently. In fact I remember Greenspan suggesting people take out adjustable rate mortgages when US interest rates were at 50 year lows. After a while one learns not to revere these learned old hands, and instead, fade them.

[Carmine6]

Gee, with a resume like that, how can I not take his economic warnings seriously.

I found his blog to be mildy amusing initially - I like a little humour in economics where I can get it - but after about 5 mins you get the impression that he's some kind of fanatic. I don't mind his lack of economics training - after all some of the most well-educated and experienced economists have completely divergent opinions and economists as a group can't agree on even some of the the most basic ideas.

It's actually well written and I don't mind his lack of economics training. But I'd no sooner rely on his economic views than a journalist's views. He's just stringing together things that have been said before.

[sonicdragon]

Gee, with a resume like that, how can I not take his economic warnings seriously.

I found his blog to be mildy amusing initially - I like a little humour in economics where I can get it - but after about 5 mins you get the impression that he's some kind of fanatic. I don't mind his lack of economics training - after all some of the most well-educated and experienced economists have completely divergent opinions and economists as a group can't agree on even some of the the most basic ideas.

It's actually well written and I don't mind his lack of economics training. But I'd no sooner rely on his economic views than a journalist's views. He's just stringing together things that have been said before.

I'd say that the vast majority of economic commentary is simply a distillation of other peoples views and analysis. Even many those with higher academic qualifications in the subject are just reciting the views of others. I enjoy reading the more radical and controversial opinions and analysis.