Thursday 16 June 2011

Northern Rock loss exposure remains with Taxpayer

Back in 2008 we Capitalists were aghast at the idea of a bail out for Northern Wreck. The company had a poor business model and should have gone under. Instead, a reckless bail-out of a non-critical bank occurred. Guarantees of over £100 billion were made to support the bank by the UK Government.

Last night the Chancellor said that the auction for sale of the 'Good Bank' could now go ahead. Media reports suggest he hopes to raise £1 billion or so from this. Sadly, this part of the bank was re-capitalised last year for £1.4 billion - so taxpayers are looking at £400 million loss. Oh dear.

Worse though is the disguise of the bad bank. now know as NRAM to hide itself as much as possible from public glare and to try and save the Wreck brand. This entity owes the UK Government a cool £21.7 billion. However it paid back £1.1 billion of that last year and still made a small profit. However, as it runs down its 850,000 mortgage customers there are a lot of complexities to be overcome, repaying the securitsation bond holders of Granite, managing costs and the fact that the housing market is still falling on those 125% Loan to Value mortgages it has. At the rate it is going, it will be over a decade before the vehicle is run-off. It is very unlikely to ever make a profit and indeed, avoiding a huge taxpayer loss will be hard.

In 2008, we predicted that Northern Rock nationalisation would occur and that we would not get out money back, it was not a hard thing to do. This is still likely to be the case (interest on the loans of £21.7 billion over ten years is £7.5 billion (at 3.5% which is optimistic for Gilts alone - hopefully Wreck will be able to help with some of that at least!). In fact, it seems quite conservative.

Tell me again why we did this. Of course, worse is that we have Bradford and Bingley and Dumfernline in the same bucket too now. Bugger.


Jan said...

Remember it was Nu Labour what did it and there's nothing Nu Labour-types like more than a lame duck or 2.

Remember too the loss of face because of the "no more boom and bust" scenario.

Anonymous said...

Talking about Northern Wreck, what is the word of that obscure Granite thing based in the Channel Islands, I not heard or read a thing about that, it seems to have gone very quiet. I was actually suprised to see that at the time of going bust a director of NW was a director of RBS

CityUnslicker said...

ANON - Granite is the vehicle which is really NRAM. NRAM is effecively the special servicer to the Granite vehicle in run off.