Saturday 15 September 2007

Northern Rock


Yesterday saw a huge disaster for one of the UK's biggest mortgage lenders. Northern Rock announced it had had to seek special credit lines from the Bank of England; the result was a 30% fall in its share price and a run on the bank.

Over £1 billion of savings was withdrawn yesterday and on the news this morning people are queuing to try and get their money out. The bank of course is saying there is no need to panic and Alistair Darling chipped in to this end too.

So is there a need to panic and withdraw funds if you have them in Northern Rock.

On the one hand, probably not, even if the bank is in difficulties, the most likely outcome is another bank coming in and buying it for next to nothing; so there would be no problem with the funds held.

on the other hand, as the deposits are withdrawn and the Bank continues to struggle to raise finance in the stalled credit markets, the situation gets worse. With no money to lend for new mortgages and loans the whole system seizes up. If I was a pensioner with all my savings in Northern Rock then I would be there today getting my money out.

If banks do go under you are not guaranteed to get back much past £2000 of deposits; so why take the risk when there are plenty of other place to put you money.

15 comments:

James Higham said...

You know my advice to people - get out while you can. Nothing I've seen since has altered this assessment.

Anonymous said...

You are guaranteed 100% of the first £2,000 and 90% of the next £33,000 by the government. Of course if Northern Rock goes bankrupt (a major possibility) you'll be asking for your money back, along with millions of other savers. You won't see a penny for months (or possibly over a year) and will lose the interest you'd have gained if you'd transferred your money on Monday. The price you'll pay is maybe a few tenths of a percent in interest. What price is peace of mind?

CityUnslicker said...

Correct anon; my point exactly. Although with the Chancellor backing them they would be under pressure to pay back all the money they owed.

NR will do well to survive though under this pressure.

Steven_L said...

There were about 40 people queuing outside my local branch this morning. I might buy shares in it when thehy hit rock bottom.

Mark Wadsworth said...

CU, welcome back to blogging, after your Last Post of yesterday.

Why can't we just revel in the irony and hypocrisy of it all, does nobody but me remeber The Badger calling from a return to 'old fashioned banking' like, er, two days ago?

hatfield girl said...

You are guaranteed 100% of the first £2,000 and 90% of the next £33,000 by the government'.

We have a friend staying who was inadvertently frightened out of her seat at breakfast as I translated the headlines for the assembled scrambled egg and croissant eaters. Anything above the mid thirties is nothing at all then? And Mervyn is offering the loan if the economy is threatened, but is the loan there if individual depositers are about to lose their all? Or are we looking at another Equitable Life, or pension funds in general sort of situation where Brown thinks you deserve it if you have more than a few thousands?

CityUnslicker said...

Steven - sharesin banks at the moment are about as high risk as you can get.

CityUnslicker said...

mark - well quite. As if Darling has a clue!

CityUnslicker said...

HG - I will be interested to see on Monday how much they have left in deposits. Not much methinks.

painc breeds panic.

Anonymous said...

We call speculate and make pronouncements on NR, and they are all valid of course, but the point to be delved into in who is next?

NR was probably the worst bank that was reliant on credit to take their business forward, but there were and are others, and even the small credit companies are underwritten by the larger bank and it doesn't take too many of them to make up a problem of NR proportions, and the BoE will not, I am certain, bail anyone out who isn't high profile.

Probably hundreds of companies exposed themselves to too much debt and are now keeping fingers crossed.

NR is gone, so who do we shift money into?

CityUnslicker said...

The BoE seem to be keen on taking deposits now Shotgun....

Anonymous said...

The BoE seem to be keen on taking deposits now Shotgun....

Yes..but they don't give it back...:-)

Steven_L said...

Horse racing is about as high risk as you can get and I love the rush it gives me when I win.

The Northern Rock mortgage book is worth a fortune. I bet there are loads of banks that want it and loads of hedge funds that will come along for the ride.

I don't think the brand is as defunct as you all think down there. No damage has been done that the PR men can't gloss over.

Will they let it go under and let the insolvency folk disect it? I don't think so, sooner or later someone will make a grab!

Question is, what is rock bottom? (no pun intended).

tory boys never grow up said...

As already pointed out your last paragraph is plain wrong and you should remove/reword it so as not to unduly scare the ordinary punter.

Anonymous said...

He shouldn't do anything unless he wants to...and can say whatever the fuck he likes.