Thursday 16 June 2011
Northern Rock loss exposure remains with Taxpayer
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.