Northern Rock Crisis

[wilko]

In view of the crisis with thre British bank Northern Rock, how safe do expats feel about their money at home while thet are living in Thailand? Will this spill over to other banks in UK or worse will other countries experience the same?

or is this a start old a classic run on the banks of the world!????

[JR Texas]

In view of the crisis with thre British bank Northern Rock, how safe do expats feel about their money at home while thet are living in Thailand? Will this spill over to other banks in UK or worse will other countries experience the same?

or is this a start old a classic run on the banks of the world!????

I think the global economy is in the process of collapsing. The BNR run on the banks is way too similar to what happened during the "Great Depression" in the USA. Will it spread?

I think it will spread some, but, in the short term, I think the ruling elite will use the mainstream mass media to convince people things are fine. The central banks will also keep bailing out a failed system. That will not, however, stop the forces that are causing the system to fail. In the long run.........it will get ugly.

[Morden]

Northern Rock obtained much of it's mortgage money from the banking wholesale market rather than from individual savers. That market has virtually dried up for the time. The reason for that is that banks in that business are now very wary of lending funds to mortgage providers since it was found that US mortgage providers have lent to people who cannot repay their loans. The result for Northern Rock is that it has a cash flow crisis. The funds that it now cannot borrow from the market have been offered to it by the Bank of England with the agreement of the British Government. This support would not have been offered if Northern Rock was insolvent. It has not yet used this facility. Other banks that borrow in the wholesale market, such as Barclays, are also affected but not to the same degree.

Individual savers have played safe and withdrawn their savings from Northern Rock. The first day's rush, on Friday, results in the withdrawal of £1b according to the news media. That equates, I think, to about 4% of the bank's total funds. There was another rush on Saturday. The rush is irrational from the money market's point of view but quite rational for people who have their life saving in Northern Rock. It is probable that the bank will never regain the confidence of investors. It's share value dropped by about 30% on Friday. The bank will probably be taken over by another, provided that the Bank of England continues it's loan facility.

So, this is not the start of a global collapse of the banking system. If anyone thinks it is, they should buy gold now! Banks lend to each other as a normal part of their business. The problem in the US has made banks cautious. The Bank of England is the banks' bank and, for them, the bank of last resort. The British Government would not authorise it to lend to an insolvent bank.

The lesson that banks should learn from this is that the old way of underwriting loans and acquiring funds was safer.

One lesson that internet users might learn is that, in such panic circumstances, they may not be able to log on to withdraw their money. Despite the long queues outside Northern Rock branches, those people did manage to get their money.

[TBWG]

Northern Rock obtained much of it's mortgage money from the banking wholesale market rather than from individual savers. That market has virtually dried up for the time. The reason for that is that banks in that business are now very wary of lending funds to mortgage providers since it was found that US mortgage providers have lent to people who cannot repay their loans. The result for Northern Rock is that it has a cash flow crisis. The funds that it now cannot borrow from the market have been offered to it by the Bank of England with the agreement of the British Government. This support would not have been offered if Northern Rock was insolvent. It has not yet used this facility. Other banks that borrow in the wholesale market, such as Barclays, are also affected but not to the same degree.

Individual savers have played safe and withdrawn their savings from Northern Rock. The first day's rush, on Friday, results in the withdrawal of £1b according to the news media. That equates, I think, to about 4% of the bank's total funds. There was another rush on Saturday. The rush is irrational from the money market's point of view but quite rational for people who have their life saving in Northern Rock. It is probable that the bank will never regain the confidence of investors. It's share value dropped by about 30% on Friday. The bank will probably be taken over by another, provided that the Bank of England continues it's loan facility.

So, this is not the start of a global collapse of the banking system. If anyone thinks it is, they should buy gold now! Banks lend to each other as a normal part of their business. The problem in the US has made banks cautious. The Bank of England is the banks' bank and, for them, the bank of last resort. The British Government would not authorise it to lend to an insolvent bank.

The lesson that banks should learn from this is that the old way of underwriting loans and acquiring funds was safer.

One lesson that internet users might learn is that, in such panic circumstances, they may not be able to log on to withdraw their money. Despite the long queues outside Northern Rock branches, those people did manage to get their money.

Hi

I think the problem has been exacerbated by the fact that the government has said there is not a problem. There is a problem and that is nobody trusts politicians.

Perhaps with good reason going back to the Court Line fiasco in the late 60's more recently Marconi and the grannies loosing their blouses comments on Railtrack, shows their contempt for the man in the street.

I recall someone on this forum saying the current batch of retirees have 2 things to be thankful for, pensions and building societies, well the current government has bu**ered future pensions, lets hope they don't give the football managers vote of confidence to banks and building societies because we will then be in real trouble.

TBWG

PS: I think if my life's savings where in the Northern Rock i'd be joining the queue.

[lannarebirth]

When 9/11 happened, I was heavily short the American stock market and a few selected stocks. The entire week after, while the market was closed, politicians and leading bankers would come on television to implore the public to "stay the course" and not be unpatriotic by selling their shares in the market. I don't know, something they said moved me to close my positions immediately at the open when the markets resumed. It was clear after the first hour, and in the following days, that those same bastards were selling their positions with both hands. That lesson cost me 500k dollars in lost profits. I'm not sure what made me think of that.

[soundman]

When 9/11 happened, I was heavily short the American stock market and a few selected stocks. The entire week after, while the market was closed, politicians and leading bankers would come on television to implore the public to "stay the course" and not be unpatriotic by selling their shares in the market. I don't know, something they said moved me to close my positions immediately at the open when the markets resumed. It was clear after the first hour, and in the following days, that those same bastards were selling their positions with both hands. That lesson cost me 500k dollars in lost profits. I'm not sure what made me think of that.

Sure you do & $500k is a very painful experience, especially when it is your cash. (I took a $200K hit earlier this year so I can sympathise).

Don't listen to your peers in crisis situations, go with your gut instinct (honed with many years of practical experience), as when the shit hits the fan it really is every man for himself.

With reference to this thread, the runs on the bank & general financial situation have all the hallmarks of the "building society" collapses in Victoria in the early nineties.

[lannarebirth]

When 9/11 happened, I was heavily short the American stock market and a few selected stocks. The entire week after, while the market was closed, politicians and leading bankers would come on television to implore the public to "stay the course" and not be unpatriotic by selling their shares in the market. I don't know, something they said moved me to close my positions immediately at the open when the markets resumed. It was clear after the first hour, and in the following days, that those same bastards were selling their positions with both hands. That lesson cost me 500k dollars in lost profits. I'm not sure what made me think of that.

Sure you do & $500k is a very painful experience, especially when it is your cash. (I took a $200K hit earlier this year so I can sympathise).

Don't listen to your peers in crisis situations, go with your gut instinct (honed with many years of practical experience), as when the shit hits the fan it really is every man for himself.

With reference to this thread, the runs on the bank & general financial situation have all the hallmarks of the "building society" collapses in Victoria in the early nineties.

I probably could have been more clear. I held a position that went up in value as the market went down. I'd had it for two months already. I closed it when trading resumed, and the market plunged further due to brokerages selling out. So, I didn't actually lose any money, but deviating from my instincts caused me to not make as much. I allowed myself to think it was a selfless or sympathetic gesture, which of course is just plain bullshit.

[soundman]

I allowed myself to think it was a selfless or sympathetic gesture, which of course is just plain bullshit.

That is exactly what I was getting at. The only times (three, all for different reasons) I have ever been hurt really bad (finacially) in my life is when this exact sentiment entered my head.

When the cookie is crumbling, or someone is giving you a sob story while they still have their Benz - forget it - every man for himself - all decisions come home to roost!

[Captain Chaos]

In view of the crisis with thre British bank Northern Rock, how safe do expats feel about their money at home while thet are living in Thailand? Will this spill over to other banks in UK or worse will other countries experience the same?

or is this a start old a classic run on the banks of the world!????

I think the global economy is in the process of collapsing. The BNR run on the banks is way too similar to what happened during the "Great Depression" in the USA. Will it spread?

I think it will spread some, but, in the short term, I think the ruling elite will use the mainstream mass media to convince people things are fine. The central banks will also keep bailing out a failed system. That will not, however, stop the forces that are causing the system to fail. In the long run.........it will get ugly.

The global economy is collapsing? Please enlighten us as to what you base this dramatic statement on?

Looks to me like one medium size British building society that had ambitious plans to vault to the top of the pile over-stretched themselves on their ability to sell their packaged debt & risk to the markets ... as of today, I don't accept that this is at all the same as a general collapse ...

[A_Traveller]

Not sure why we end up with 2 threads on this, however, NR was {yes i think they'll be sold} unusual in that it did not have access to a widely disbursed depositors network and so raised over 40% {compared to @7%} of it funding from the commercial paper market. It had been doing this successfully for many years, however in the present climate the lack of liquidity meant that the market was unwilling to support NR's business model. As I posted yesterday, there were moves afoot to sell NR, but the problem was that the purchasers were expecting the BoE to step in as a guarantor for the transaction {thereby protecting shareholders, not just depositors} and, BoE was unwilling so to do.

This is not an indicative institution, owing to its singular exposure, though there are key underlying issues, which I've already listed elsewhere, indeed the expectation of the purchasers raises the whole moral hazard concern which seems to have been forgotten by participants in this.

Depositors as I've stated elsewhere are safe, {statements by BoE & Chancellor, make it virtually impossible for depositors not to be covered for 100% as opposed to the standard amounts} however shareholders are not.

Regards

Edited September 16, 2007 by A_Traveller

[pointofview]

I have presonnaly witnessed the run on the bank (Northern Rock) over the past days.

Facts -as stated by CEO: they have 24 billion from savers investments, yet over the past 2 days (Friday and Saturday) only 1.5 billion was withdrawn. That means only 1.5 people out of every 24 withdrew their funds - the othere 22.5 in every 24 are holding back. (nerves of steel)

Well if you believe that then you probably believe 9/11 wastnt a inside job. People were queing all day fri and sat - ques extending for upto 100 metres outside branches throughout the country. I think you can safely reverse the figures. The only people that have not closed their accounts are either overseas or have internet accounts - website has been crashed

[Carmine6]

I have presonnaly witnessed the run on the bank (Northern Rock) over the past days.

Facts -as stated by CEO: they have 24 billion from savers investments, yet over the past 2 days (Friday and Saturday) only 1.5 billion was withdrawn. That means only 1.5 people out of every 24 withdrew their funds - the othere 22.5 in every 24 are holding back. (nerves of steel)

Well if you believe that then you probably believe 9/11 wastnt a inside job. People were queing all day fri and sat - ques extending for upto 100 metres outside branches throughout the country. I think you can safely reverse the figures. The only people that have not closed their accounts are either overseas or have internet accounts - website has been crashed

Here's a way to test if the bank's figure makes sense.

There were $24 billion in deposits, and per one of the articles, 1.4 million depositors or probably more accurately accounts. (19,444 depositors per branch)

That is an average £17,143 per depositor.

£1.5 billion is 87,500 average sized accounts closed.

With 72 branches, that is 1,215 accounts closed per branch.

Assuming there were roughly 18 operating hours on Friday and Saturday, 67.5 accounts per hour per branch were closed.

Assuming it takes 10 minutes average to close one account would require 11.25 employees per branch closing accounts all day long.

That sounds high but reasonable given that some transfers will happen online. There's a lot of ways to do the rough calculation, such as figuring out how many accounts it is practically possible to have closed in just 2 days.

But the key is it takes stretched assumptions for that £1.5 billion to not be about right. There would have to be a lot of extremely large accounts being closed for example, or thousands queuing up at each branch instead of hundreds. No doubt it'll keep going on, but it doesn't seem like the figures are wrong so far.

[wilko]

actually I wasn't asking for the whys and wherefores of NR - they are pretty plain...but I'm more interested in the ramifications.....despite the situation in NR not really being that serious it resulted in a run on the bank.....the past few months have seen erratic dealing on stock markets, commodities etc etc and the teetering of several institutions....now you can quote as many figures as you like but if "the masses are loosig cofidence in thwe banking and finace systems will this lead to the sort of behaviour that will bring about a recession?....how will the expats eal with this?.....are they worried that their savings suddenly will not be yielding enough to live off or will they move their money/savings elsewhere? Is so where?

[midas]

actually I wasn't asking for the whys and wherefores of NR - they are pretty plain...but I'm more interested in the ramifications.....despite the situation in NR not really being that serious it resulted in a run on the bank.....the past few months have seen erratic dealing on stock markets, commodities etc etc and the teetering of several institutions....now you can quote as many figures as you like but if "the masses are loosig cofidence in thwe banking and finace systems will this lead to the sort of behaviour that will bring about a recession?....how will the expats eal with this?.....are they worried that their savings suddenly will not be yielding enough to live off or will they move their money/savings elsewhere? Is so where?

Yes wilko I would like to block it all out but you cant

help be concerned about these incidents

- like " cracks " in what seems to be

an increasinly fragile financial system - and

to see headlines like this today - " France warning of war with Iran "

and knowing how this could affect world oil prices

I even wonder how /if these two things could interelate ?

[midas]

sorry ! I didnt mean to print that comment in large font

-

[cclub75]

sorry ! I didnt mean to print that comment in large font

-

But you did.

Actually, regarding the comment of the french foreign minister about Iran... i think large font is right.

He said -exactly : "we have to be prepared for the worst with Iran.... "

Journalist asked after : "that is ?" He answered : "that is war".

Just to give some precisions, bernard Kouchner is coming from the socialist party. He was a silent supporter of the irak war, because he hates all kind of dictators.

He's not a young politician. He has experience. So his statement (live on radio) is rather strange. Mistake ? I don't believe it.

The president Sarkozy made also tough statements in july against Iran...

Anyway. back to Northern Rock.

So, we should open the bets. How much today ?

Edited September 17, 2007 by cclub75

[cmsally]

On the BBC today they showed a chart of Northern Rock share values and if you look since Feb 07 , their value has gone down by 65%.

Yikes!

[lancelotlink]

It's obviously the end of the world. There was the oil crisis of the seventies now we are heading to other crisises. Markets will continue to creep down. Do you really think the investors in that bank aren't going to think twice about saving other assets they hold. Things are going down- a steady decline down, down, down. Hot dustbowl.

[lannarebirth]

It's obviously the end of the world. There was the oil crisis of the seventies now we are heading to other crisises. Markets will continue to creep down. Do you really think the investors in that bank aren't going to think twice about saving other assets they hold. Things are going down- a steady decline down, down, down. Hot dustbowl.

Actually, aftersome bottoming action, markets may increase steadily. But if you're an expat and your currency is going down and it becomes a taxable event to realize gains in other, non cash assets, did you actually make anything?

[wilko]

And now A&L shares have dropped by 20% and other Uk Building Soc Banks too apparently....there appears to be increasing lack of confidence from the public. If this happens in UK where else and how will this effect money coming to Thailand