Thursday, October 25, 2007

Northern Rock has borrowed $ 42 Billion from the BOE

I don´t care if someone still argues that this isn´t a bailout. What started with a speech from the head of the BOE Marvin King dissing the ECB and the Fed for providing liquidity has morphed into a disaster for the credibility of the BOE. They have rescued one of the most aggressive lender in the UK . I don´t care if the collateral from Northern Rock for the $ 42 billion is "first class". You just have to look at the UK housing market and combine this with the fact that Northern Rock was active in creative financing and the action from the BOE sends a clear message..... No wonder that the Bank of England set to win power for covert rescues .....

Wer spricht immer noch davon das es sich hier um keinen Bailout handelt....... Was mit einer Rede vom Kopf der BOE Marvin King angefangen hat indem er die anderen Notenbänker für deren großzügigen Liquiditätsspritzen kritisiert hat mutiert zu einem Debakel erster Klasse für ihn und die BOE. Erschwerend kommt hinzu das die Hilfe ausgerechnet dem mit Abstand aggressivsten Akteur auf dem UK Hypothekenmarkt zugeflossen ist. In meinen Augen zieht auch nicht das ja als Sicherheit angeblich das erstklassige Kreditbuch von Northern Rock eingebracht wird. Wenn ich mir den Zustand des UK Immobilienmarktes vor Augen führe und das mit der Tatsache kombiniere das Northern Rock führend im "kreativen" Hypothekensegment gewesen ist braucht man sich nicht wundern wenn dieses als Signal aufgefasst wird das im Zweifel die BOE oder der Steuerzahler schon helfen wird.......Kein Wunder das die BOE jetzt um Ermächtigung sucht verdeckte Rettungsaktionen durchzuführen......

Rock against the clock / FT
Each week the sums get ever more eyewatering. It has now emerged that Northern Rock has borrowed an extra £4.65bn from the Bank of England, taking its total state-sponsored borrowing to £20.6bn.

The facility is due to expire in February and is intended to enable the Newcastle lender to find its own solution to its funding crisis and examine possible bids.

Alistair Darling, the chancellor of exchequer, scotched one worry about the situation on Thursday when he told MPs that the European Commission had raised no objections to the facility. That suggests it is not being treated as state aid under European rules. So in theory there is scope for the facility to be extended. This matters because Northern Rock’s potential suitors – Cerberus, JC Flowers and Virgin Group – will surely want government assistance to be extended after any takeover.

After all, the size of the refinancing required for Northern Rock is the key obstacle to any bidder. A buyer will have to repay £20.6bn of Bank funding and replace £14bn of short- and medium-term loans. For example, Lloyds TSB sought a £30bn loan from the Bank as a condition of buying Northern Rock. A successful bidder would also need extra capital to continue writing a minimum volume of mortgages and drive some inflows of retail savings, because Northern Rock’s securitisation vehicle, Granite, must keep a certain level of mortgages within its securitisation trust to function.

So the government’s involvement in Northern Rock is looking increasingly long-term. The hope in Newcastle must be that the Eurocrat view that this does not fall foul of state-aid rules will be long-term too.

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Blogger jmf said...

OPEC to Fed: “Go Ahead, Make My Day”

12:55 AM  
Blogger jmf said...

China, Emerging Markets Can't Fill U.S. Shoes: Michael R. Sesit

Although developing countries are projected to account for about three-quarters of global growth in 2007, their size is still too small to power the world economy. Take the four BRIC nations: Collectively their GDP amounted to $5.6 trillion at the end of 2006. That's 43 percent of U.S. GDP, 56 percent of the 13- nation euro area's and 130 percent of Japan's.

When it comes to stock markets, the gap is even wider. The aggregate free-float value of the Brazilian, Russian, Indian and Chinese stock markets is a mere 4.9 percent of world market value, according to Morgan Stanley Capital International. The four BRICs are 12 percent of the U.S. market value, 16 percent of Europe's and 56 percent of Japan's.

China's CSI 300 Index has more than tripled in the past 12 months. Still, the country's stock market represents just 1.9 percent of total world-market value compared with U.S. equities' global share of 42 percent.

Even though developing countries are trying to boost domestic demand, they remain dependent on exports, accounting for about 45 percent of the world's cross-border sale of goods, according to Merrill Lynch.

2:00 AM  
Blogger jmf said...

Deutsche Bank Considers Participating in $80 Billion SIV Fund

``We're currently studying it and we're in a constructive dialogue with the American banks as well as American authorities,'' Ackermann said in an interview last night in Frankfurt, where Deutsche Bank is based.

2:51 AM  
Blogger Hellasious said...

Thanks vm for providing the NR liabilities chart.

Northern Rock has a very small deposit base (20 billion GBP out of 120 billion). BOE has already provided 20 billion, so effectively the backer for the bank's entire deposit base is now BOE.

Given the rest of NR's structure, the govt. should formally nationalize the bank, because handing it over to Cerberus et. al. at this stage would be a direct public money subsidy to the said private equity funds. If they want it "as is" (no BOE money), perfectly fine. Otherwise, it already belongs to the people, through BOE.

3:07 AM  
Blogger jmf said...

Moin Hellasious,

I really was impressed that King/BOE had bashed the ECB and the FED and so did the currency market.

But since he made a u-turn the slide of the pound vs every major currency excluding the US$ has begun...

I wonder why still some people questioning why gold is doing so well :-)

3:32 AM  
Blogger Hellasious said...

King was forced to do it because all the major London banks with exposure to NR (plus more) were going to the ECB for money. After a few days of this, the ECB asked BOE to kindly do its own dirty work.

4:40 AM  
Blogger Yogi said...

Good post J-M. It probably won't be good for the Pound when the U.K. authorities have to nationalize Northern Rock, but you never know how markets will react. Just look at that short squeeze in Countrywide (CFC) today!

8:52 AM  
Blogger jmf said...

Moin Yogi,

i agree.

In the short term the markets act often very irrational.

But in the long run i still have hope that fundamentals matter.

The jump in CFC reminds me on several squeezes in the homebuilder universe during the past 24 month.....

Each time the bottom was near/in or one drunken analyst has called them cheap etc

9:05 AM  
Anonymous traderboy said...

as a uk taxpayer it really p*sses me off that the BoE has just risked £20bn of taxpayers money on a bail-out, and because they are in so big they are now committed to giving whatever cash it takes now. they could have used that £20bn to bail-out depositers (within the pre-specified limits of course) and then anyone else with equity or credit risk to Northern Rock can pay for their risk-taking.

Anyway, now the BoE is so committed, you might as well own Northern Rock equity. The BoE wants the Rock to be bought, a few people want to buy it, so shareholders from here should be fine. Sadly.

11:09 AM  
Blogger jmf said...

Moin Traderboy


10:45 PM  
Blogger jmf said...

U.K. Home Prices Fall for First Time in 2 Years, Led by London

U.K. house prices fell for the first time in two years in October, led by declines in central London, a survey of 6,000 real estate agents by Hometrack Ltd. showed.

The average cost of a home in England and Wales fell 0.1 percent to 176,100 pounds ($361,462) from September, the London- based research group said today. Prices in central London and the financial district fell 0.5 percent, the most of any part of the country.

1:31 AM  

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