Northern Virgin (or Virgin Rock?)

Link here to a story about Virgin Groups interest in Northern Rock.

http://news.bbc.co.uk/1/hi/business/7041083.stm

[V]

45.

Originally posted by VS045
[V]

45.

What's wrong 45?[?]

I don't think investing in N Rock is a particularly good idea in the medium-long term.

45.

I am reserving judgement. My mortgage is with NR and to be fair their customer service has always been fantastic. So from that point of view they are fine.

Financially, I think Virgin are looking at changing the way NR works to make it more like other banks, i.e get savers money in and then loan out that money as mortgages rather than borrowing from the wholesale market.

[Scrooge]

Originally posted by VS045
I don't think investing in N Rock is a particularly good idea in the medium-long term.

45.

Why not, if you have the money now is a great time to get in, as long as the company has written off it's bad loans and is going for the right price.

B of A just took a major stake in countrywide over here.
Merrill lynch is wishing they had waited 6 months before buying first franklin...then destroying it (different story)

If the price is right rock n roll.

Originally posted by GreboDB
Financially, I think Virgin are looking at changing the way NR works to make it more like other banks, i.e get savers money in and then loan out that money as mortgages rather than borrowing from the wholesale market.

Though Northern Rock were at a particular extreme, no bank or building society would be able to lend much if they simply loaned out what they took in. In the days before financial deregulation, it used to be the case that for every £8 of saving, the banks would loan out £100, and I think building societies were more constrained than that (hence having to wait to get a mortgage).

Post deregulation, every bank has filled the gap between liabilities (savings) and assets (loans) by going to the financial market. NR's problems were that they were borrowing short and lending long (a bit of a pickle when the cost of borrowing rises) and they were also big in the securitisation market.

Here they packaged up good mortgages (and the NR mortgages book was good, I had dealing with them in this sphere a few years back) and sold them into the capital markets, moving them off their balance sheet to be able to loan out more money. Once the subprime problem hit in the US, where securitisation is a standard financing option for lenders in the subprime market, no one wanted to buy bonds secured on mortgages (well, not at the right price) as they might be 'toxic', containing loans which would never be repaid. At this point, NR had a funding shortfall and no Jimmy Stewart to talk the savers out of withdrawing their money.

Paul

Doesn't seem like a good industry to invest in to me at the moment with various doom and gloom predictions for the next couple of years.

45.

[Darren Wheeler]

Apparently the deal is now back on with Virgin being the favorite. HM Treasury has approved the deal and it's now down to the shareholder.

Virgin poised for Rock takeover

I can see Virgin having a high street banking presence soon.

[Pete]

It does seem as though it's the best solution for shareholders and taxpayers. Without this deal, NR would go into receivership and that wouldn't be a good end.

[Darren Wheeler]

Yep. A lot of fuss has been made about the BoE bailing them out but no matter what happened, the Treasury would have been slated.

Better to lend them £25 billion and it survive than sit back and watch as it collapse. The money of many savers would be secure and still have to paid from public funds.

The second largest shareholder reckons the offer tabled by Virgin is too low and will oppose the bid.

BBC story here

Jonathan

[Decker]

It's a COMMERCIAL enterprise. Market forces. No clue why tax payers are involved? (well apart from cynical vote rigging). Hopefully someone will be able to explain this to me in words of two syllables or less.

[Pete]

Well, the current shareholders could not take the offer and watch the company slide off into administration (or be nationalised, which means no shareholding either).

Once they realise they currently hold stock in a failing company and this is the best (only?) offer on the table, maybe they'll see that some value is better than no value at all.

[Decker]

What I'm failing to see is why it isn't just allowed to slide off into administration? Yes it'd hurt shareholders and customers but it's a business not a government department. But wait - perhaps it'd scare consumers into researching the companies they gave their money to? This whole debacle sucks. And last week's Private Eye was profoundly depressing too.

Originally posted by Decker
What I'm failing to see is why it isn't just allowed to slide off into administration? Yes it'd hurt shareholders and customers but it's a business not a government department. But wait - perhaps it'd scare consumers into researching the companies they gave their money to? This whole debacle sucks. And last week's Private Eye was profoundly depressing too.

yes, it is interesting that when MG Rover went under with the loss of 10,000 jobs, they could not do anything, but a bank looks like going under with the loss of 6,000 jobs and suddenly Billions are found.......

[Scrooge]

Not wanting to pull this thread to far off topic, but...

he company Mrs Scrooge works for will be releasing a new mortgage product over here in a couple of weeks, what they will be doing is qualifying new borrowers without using their current mortgage payment in their DTI ratio.

What this means is that people will pretty much be able to go out and buy a new home for a lot less then their current home and then stick their current lender with the foreclosure.

This off course is not such a good thing, but right now over here the banks etc are saying they will work with people, then making them jump through 20 hoops to do so, and then reducing the rate by oh say 1% which is of no use what so ever.

In the end the companies that are willing to work with people in a meaningful fashion should be safe, those that are not working with people will take it on the chin.

Back on topic..

Are saving accounts government insured over there..been to long for me to remember .

Originally posted by Scrooge
Are saving accounts government insured over there..been to long for me to remember .

For Northern Rock, yes in full. For all others there's now (since 1 October) guarantee on £35,000 of deposits in a single institution under the FSCS. Before that there was a sliding scale, and since then there have been discussions about changing the limit. It's effectively a government insurance, but funded by a levy on the financial services industry.

Paul

[Scrooge]

Ok, same as here then..roughly...

I am just wondering how much it would of cost HM Government to pay of the insured accounts, hence the bail outs...

If great than the amount given then it makes sense, if less then it is wrong, another company will always step into the vacuum left behind.

[Darren Wheeler]

Not being an economist or whatever, the problems as I see it is this.

If you let NR fold, what is that going to do to the banking industry in the UK, and worldwide? I suspect confidence would disappear, others would fold following runs and a recession would follow.

Not exactly fun.

Originally posted by Darren Wheeler
If you let NR fold, what is that going to do to the banking industry in the UK, and worldwide? I suspect confidence would disappear, others would fold following runs and a recession would follow.

It would, and there'd be no community of folks around to help out as at the end of 'It's A Wonderful Life'. The whole banking structure is based on the belief on the part of depositors that they'll get their money back in the end (+ a bit of interest) and the hope on the part of the banks that the depositors will not want all their money back at once as generally they (the bank) will lend out a multiple of the deposits they have.

On the part of HMG their balancing act is to be seen to be punishing (or at least not rewarding) those institutions with business practices that lead to problems such as this. HMG's problem is how do you punish the institution by letting it fail without also punishing the depositors or the shareholder community - the latter a particularly knotty problem as those high up in the institutions who make and execute the policies are often rewarded in shares and there's no market led way to punish them by letting share values plummet without also punishing the 'external' shareholders.

A flight to cash and keeping it under the mattress would cause futher problems for economies that are supported by cashless payment systems.

Paul

Originally posted by Decker
What I'm failing to see is why it isn't just allowed to slide off into administration? Yes it'd hurt shareholders and customers but it's a business not a government department. But wait - perhaps it'd scare consumers into researching the companies they gave their money to? This whole debacle sucks. And last week's Private Eye was profoundly depressing too.

Im rather flabbergasted by that statement Decker.

If Northern Rock had been allowed to slide into administration we would have seen a banking crisis in the UK and across the world that would have affected everyone.

The press seem all caught up in 'the taxpayers £900' but the point is the government (as much as it loathes me to say so) did the correct thing given the circumstances. The media seem to be demanding the taxpayers £900 back but are missing the point that once it was given over to the HMRC it is up to them how they spend it. I don't complain that my taxes have to fund failing secondary comprehensives so why should people complain that their money helps to save a bank?!

And believe me, the likes of HSBC, RBS, Citigroup aren't exactly smelling of roses. Just look at the HSBC share price for example.

[Decker]

Because when it succeeds the shareholders get the profits not the exchequer. Hardly a two way street. Perhaps the world OUGHT to wise up to the Emperor's New Clothes?

[RichardMannion]

I'm with Decker on this, I fail to see why the government in this instance decided to support the bank that had obviously made a series of errors, by providing such a line of credit and guaranteeing customers money.

They are using public money to support one group of citizens unfortunate choice in bank. If I was to invest my money in a bank, and it went under the last thing I would expect is for the government to step in and provide the support; the bank is not a public entity; it's a private sector institution. Unless I have missed something and NR (or whoever takes it) is goign to repay the multi-billion pound loan complete with interest back to the state within a timely manner - from what I've seen so far they get half the money back instantly and the rest in years to come?

Companies fail every day, and there is no government assistance there. BCCI anyone?

Originally posted by RichardMannion
Companies fail every day, and there is no government assistance there. BCCI anyone?

I don't recall middle england being queued up outside BCCI branches withdrawing their cash, nor a media having tons'o'fun running 'is it YOUR bank next ?!' stories and hoping for photogenic queues outside the local Barclays, Lloyds et al. NR had the potential to get very ugly very quickly for the entire banking structure and the entire cashless payment infrastructure.

Paul