Tuesday, November 13, 2007

Northern Rock faces years of debt

And some still call it not a bailout....... Here is more on Northern Rock

Und einige behaupten immer noch das es sich hier nicht um einen Bailout handelt...... Hier gibt es mehr zu Northern Rock

Northern Rock faces years of debt / FT
Northern Rock could still owe the Bank of England billions of pounds in three years’ time, according to a confidential sales memo circulated to would-be buyers of the stricken lender.

The memorandum, obtained by the Financial Times’ Alphaville website, is now the subject of a court injunction after Northern Rock sought to prevent publication of its details. The High Court granted a limited injunction preventing further reporting of material, but it rejected a much more sweeping prohibition sought by the bank after much of the FT’s report was followed up in other media.

The document suggests that even if the company was bought outright, the Bank may have to provide support to Northern Rock until 2010 when the stricken lender could still be drawing down £6bn.

The memorandum discloses that Northern Rock expects to have borrowed an estimated £24bn from the Bank of England by January 1 2008. Northern Rock is thought to have borrowed about £20bn from the Bank so far. Last night, Treasury insiders voiced surprise at the suggestion that the government, which has underwritten the Bank loan, would still be waiting to be repaid in 2010.

The memo talks about the loan being refinanced – though it is not explicit about whether such a refinancing would continue to involve government support. However, people involved in the sale process doubt whether any bidder would be able to raise the necessary financing to repay the Bank in the near future.

This could leave the government facing the political embarrassment of having agreed to a long-term guarantee that it could be forced to justify to the European Commission under rules governing state aid.

According to the sales memo, even in 2010 Northern Rock will need to be in receipt of £6bn from what it calls a replacement facility from the Bank of England.

The information memorandum has been sent to about 50 potential bidders and sets out three options for a sale of Northern Rock. As well as a sale of the whole business, the other scenarios envisage splitting up Northern Rock.

One option would see a sale of the basic infrastructure of the business – such as the branches, IT and call centre that might or might not include Northern Rock’s £13.5bn of retail deposits and matching assets.

The other option would be a sale of the infrastructure plus securitised mortgages, leaving behind some assets and liabilities for an orderly run-off. Both these scenarios would leave Northern Rock as a listed entity with assets that could be used to repay the Bank of England.

The memorandum assumes Northern Rock’s profits will plunge to £143m in 2008 but will recover to reach £643m by 2010. This would be an impressive recovery as it is more than the bank made in 2006. .....

> What a farce. One look at the state of the UK housing market and everybody knows that is downhill from now on for years to come.....

> Was für Witz. Ein Blick auf den UK Immobilienmarkt sollte geügen um zu erkennen das es von nun ab nur noch abwärts geht.....

Most of the bidders for Northern Rock are thought to have concluded that the shares are worth next to nothing. However, several hedge funds have built substantial stakes in the bank and would be expected to resist any proposal that would undermine the value of their shares.

On Tuesday it emerged that SRM Global, the hedge fund run by Jon Wood, a former UBS trader, had increased its stake in the bank from 4 per cent to 6.17 per cent. Shares in Northern Rock closed down 1.55 per cent at 152p.

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Anonymous traderboy said...

£24bn = £400 from each man woman and child in the UK. Disgusting.

The UK is an ugly place just now, the bubble has been as big as anywhere (and certainly bigger than the US ever was), anecdotally it seems that the property market has now clearly begun the down move.

Sell Sterling vs dollar and wait for it to go from above 2 to below 1.50 pretty quick. Ugly trade deficit numbers the other day. I'm no economist but don't see why the UK's deficit gets ignored whilst the US's is always being talked about (I'm not sure of the exact relative numbers and it didn't immediately turn up in a Google search).

Also reckon that buying the CAC (French stock market) versus the FTSE could be the trade, at least Sarkozy is trying to turn the French more free market and less dependant on the government, whilst the UK gets more and more socialist...

12:33 AM  
Blogger jmf said...

Moin Traderboy,

i agree that the UK is facing probably the most headwinds from all G7 countries.

I am short the pound vs the € several month now. I almost got kicked out after King criticises the ECB and the Fed for pumping liquidity etc..... The pound rallied......

Two days after this comment his "credibility" imploded and the pound has "reacted"...

Don´t like the € either but it is better than the pound.....

I´m not so sure about the French.....

Okay, so here’s what Northern Rock have to say about THAT story

12:49 AM  
Blogger jmf said...

HSBC takes $3.4 billion loan loss charge in U.S. business

HSBC one of the first banks to report difficulties from the U.S. subprime market, said it's taking a $3.4 billion loan impairment charge in its U.S. consumer finance business during the third quarter, which it said was $1.4 billion higher than would have been implied by extrapoloating first-half trends. Of this increment, some $700 million related to real estate secured credit with the remainder largely due to branch unsecured loan and cards portfolios

HSBC Holdings up 4.1% in London after U.S. unit results....

12:51 AM  
Blogger jmf said...

Here we go.... Pound is hitting new lows....

Bank of England Signals Need for Rate Cut in 2008

The inflation rate will settle to the bank's 2 percent target in 2009 after rising above it next year, the central bank said. Its forecasts are based on market assumptions the bank will cut the main rate a quarter point to 5.5 percent in the first quarter. Growth risks are ``on the downside,'' and inflation risks are ``balanced,'' the bank said.

3:51 AM  
Anonymous Anonymous said...

moin jmf,

The same thing is happening here. That money will never get paid back either, and the crooks have already absconded with their loot.

10:04 AM  
Blogger jmf said...

Moin Edgar,

amazing isn´t it.....

I really think the confidence in almost all central banks around the world will take a significant hit.

The have already made the groundwork for the next disaster....

There seems to be no way they can allow to stop the credit cycle.....

No matter how high the future costs are.

I have never felt better with my gold position :-)

10:29 AM  
Anonymous Anonymous said...

Yes, I agree. Someone told me today that the laws of economics have not been repealed. I think they have, but I could be wrong. The criminal class has rigged the system. I don't think it will fail until the currency is no longer any good.

1:55 PM  
Anonymous shtove said...

An amusing example of the pointlessness of Northern Rock trying to suppress information:


They got an injunction to prevent publication of a document they sent to possible bidders for the business - but a quick Google simply brings it up on the inter tubes.

2:06 PM  
Anonymous Anonymous said...

I think the point is that after so many weeks there are no takers and that they have choosen to send out packages to some 50 companies speaks highly of the "value" on the table.

I very much enjoy your blog. It is my first stop in the morning. If anything, I would like more more commentary on the European front. But, I am not complaining.



8:00 PM  
Blogger jmf said...

Moin Shtove,

i haven seen the memos on Monday at FT Alphaville. Pretty optimistic.....

I once have made a post based on an article in the FT about problems from a hedge fund.

They emailed me one hour after my post was online and threatened me with their lawyer...

Moin Barley,

thanks for the kind words.

I´m pretty confident that the blog will become more European centric.... :-)

10:32 PM  
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11:06 PM  

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