Tuesday, 3 August 2010
Northern Wreck: still a disaster
More results out today from Northern Rock. Whilst yesterday say HSBC revive itself and the rest of the week is expected to see Barclays, LLoyds and RBS do likewise, the sick dog is still Northern Rock.
What makes it worse is that if you read the BBC account it seems as if things are improving when they are not. The old loan book turned a profit on the year to date; of course what this means is that the bank bought back some of its debt at a huge discount and called this profit. Actual loans in arrears barely changed and the bank still has a long way to go to pay off its debt.
The new 'Good' Bank is even worse. Income was £28.5 million and expenditure £177 million. Way to go with that. Savings fell from £19.5 billion to £17.5 billion as the Government withdrew its guarantee. Even the Chief Exec says it is hard to make any money on mortgages when interest rates are so low. Apparently this business is being prepared for sale. Good luck with that - do I see any hands going up to buy this? Thought not.
The 'Bad' Bank has also repaid £300 million of the Government loan, reducing it to £22.5 billion (erm, what happened to the £18 billion repayment, we lent the rock over £30 billion!) I wrote a long time ago that Northern Wreck would cost up to £15 billion in losses. The whole thing should have been put into administration and sold off, it would have been a much better deal for everyone and all the creditors were wiped out anyway. For under £15 billion most of the savers would have got their money back in any event once the book had been sold.
The bad bank has £48 billion in loans, to pay back the huge Government loans will require huge profits to make this achievable - in a low interest environment this will take years, maybe a decade.
What a sorry mess this is, the new Government don't have to continue this charade and a more definitive actions should be looked into now. The last Government tried to use Northern Rock as some kind of low cost state lender, a total waste of resources (another £3 billion to be exact) - just get rid of the thing like we should have done in 2007.