Thursday 17 November 2011

Northern Wreckage

Announced this morning is the sale of Northern Rock to Virgin Money for £747 million, with a potential for some more funds to come to push the deal over the £1 billion mark.

No doubt this will be spun as some achievement, getting a bank back to to the Private Sector. Of course, there is a slight issue here. There are two Northern Rock's, this profitable retail bit and the loss-making money sucking turd which is Northern Rock Asset Management.

Conveniently the nearly £8.2 billion of loans from the BOE still outstanding to Northern Wreck are to the Asset Management business. This business, although paying down the BOE loans, is still making losses of £250 million a year.

We don't have enough info really to decide whether this Asset Mgt Company will ever release enough assets at profit to repay the loans and its own winding up costs - let alone make a judgement on the true cost of support in terms of our Gilts rates which were so impacted by £30 billion of loans and £70 billion of guarantees. No doubt all of this will be hidden from Public View given the terrible nature of the decision not to let the business go under in 2008.

One question remains, why are none of the executives of the business in court. Their wreckless plan has cost the taxpayer billions of pounds - which equates to thousands for each taxpayer. I rarely agree with the trots of Occupy London - but where is the trial? Applegarth got a £63k a month pay-off instead.


jer said...

Their actions could be either reckless or wreckful, but not wreckless.

dearieme said...

Just part of Gordon Brown's Gormless Bounty.

Since I think we should reserve hanging for Tony Blair, may I urge a life sentence for Gordo?

Budgie said...

Just as Major could not sack Lamont after White Wednesday (because it would have exposed Major as more culpable than Lamont), so Brown could not shut Northern Wreck (because it would have exposed Brown as more culpable than N Wreck).

Electro-Kevin said...

Something makes me want to hit that guy.

I've put more comments on Youth Unemployment.

Anonymous said...

What exactly would they be charged with?

There is no law that says you can't run up profits year after year but based on a model that is highly risky. Thats what northern rock did.

Northern Rock shouldn't have been able to trade - its model should have been so risky that its attempts to raise money on the markets would have come at a high risk premium. The fact that they got away with this model actually points the finger of blame at the money markets - so you are right that NR should have been allowed to fail so that the money markets that had been happy to cream off interest on their loans to NR for years would pay for not adequately pricing in the risk. In the end the probably didn't lose over the whole life of NR, so why did the taxpayer have to bail them out right at the end?

Gordon Brown truly was a moron.

BrianSJ said...

Yes, but even Brown wasn't daft enough to trust Branson with a Bank. Private Eye will have a field day on Branson's accounting arrangements. I hope.

Old BE said...

Wreckless? If only!

Anonymous said...

Meanwhile the Eurozone starts to turn on Germany as the realisation that it is the one obstacle that stands in the way of a solution to the debt crisis:-

I suspect this will start to snowball and Merkel, being the dimwit she is, will keep standing up for Germany until she is entirely swept away along with Germany credibility within the EU.

Currently Spanish 10yr bonds a smidgen under the 7% level (once again implying that the ECB has set a cap at that level).

Budgie said...

Many people blame "the bankers" and then blame Thatcher for "deregulation" of the banks, conveniently forgetting the intervening 25 years.

A lot of people seem to forget that when Northern hit the Rocks the FSA, the BoE and the Treasury did not know what to do other than point the finger of blame at each other.

This was doubly Brown's fault because not only did it happen on his watch but also his ill considered transfer of some regulatory oversight from the BoE to the FSA meant that neither did the job properly.

Anonymous said...

ah what? the Germans are standing in the way of the Eurozone trying to loot the German people who had the fore-thought to save?
what bastards.

Anonymous said...

Ah the German people - who are actually in as much debt as the Spanish but the debt is spread over multiple entities so it looks like they are actually doing better than they are?

The German people that were only too happy to see ECB rules broken when unemployment in Germany reached 5million?

The German people that have massive unfunded pension liabilities that are effectively off-balance sheet?

The German people that were only too happy to find some high yielding investments in dodgy EU countries in the hope it might help their dreadful pension situation?

The German people that have been only too happy to sit back and watch whilst German banks loaned to failing German corporations that can no longer compete with over-priced German products that turn out not to have the quality and reliability they were once reputed to have?

Give it a rest. These masters of the universe are all as bad as each other. The Germans are the other cheek of the same ass.

Nick Drew said...

This was doubly Brown's fault

make that trebly Brown's fault, Budgie: to compound the rest, he had told them to adopt a 'light-touch' approach, the regulatory race to the Brown-bottom

everyone in the City knew N.Crock was in trouble at least 6 months before the queues starting forming outside the branches ... but the FSA was looking the other way

Anonymous said...

ND: "everyone in the City knew N.Crock was in trouble at least 6 months"

So, the market and the capitalist system was doing what it does best, you know, constructive destruction, and Gormless Brown stepped in to arrest the process.


Anonymous said...

''There are two Northern Rock's, this profitable retail bit and the loss-making money sucking turd which is Northern Rock Asset Management''
I think you'll find NRAM has made profit for the tax pay since it split in 2010 from what is now the ''new'' Northern Rock. The ''new'' northern rock which was sold to Virgin is yet to make a profit since it was set up in Oct 2010.

At the end of the day the assets which the government still own within NRAM far exceeds the government loan, and lets not forget the government is charging interest on this loan. It may take years to fully wind down the company and for all the mortgages to be repaid but the government stands to make billions of pounds worth of profit out of it.