UK Update & BOE Spin

Mid September Mervyn King, the governor of the Bank of England said this ...

Mitte September Tagen hatte Mervyn King, the governor of the Bank of England folgendes zu sagen .....

In an unusual public display of discord, the British central bank criticized other central banks yesterday for injecting cash into the financial system to help stabilize credit markets, saying that such a policy amounted to a bailout of investors who made bad decisions.

The main thrust of his written testimony to Parliament, however, was a sharp warning about “moral hazard” — a term used to describe the downside of policies that effectively rescue investors when their bets turn out wrong.

“The provision of such liquidity support undermines the efficient pricing of risk by providing ex-post insurance for risky behavior,” Mr. King wrote. “That encourages excessive risk-taking and sows the seeds of a future crisis.”

Too bad that everything he has said has been proven dead wrong ( in the case of Northern Rock he flip flopped within 48 hours) and he often did the exact opposite of what he was proposing. Welcome to the world of "respectable" central bankers.......Now move on to todays headlines......

Zu dumm nur das er bereist wenige Wochen um im Fall von Northern Rock nach wenigen Tagen in allen Bereichen eingeknickt ist und das oftmals das genaue Gegenteil praktiziert hat. Willkommen im Club der "ehrenwerten" Zentralbänker............ Hier ein weiteres Beispiel Wolfgang Münchau: Entzauberung einer Zentralbank

Is Britain's economy heading for the perfect storm?

UK's Northern Rock could be nationalized: report

U.K. House Prices Fall the Most Since December 2006, HBOS Says

U.K. Consumer Confidence Falls Most Since 2004

Lenders 'must prepare for worst'

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.

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.

Market Sentiment & SIVs Explained... :-)

This is a must see! Hilarious.

Sehr treffend! Fantastisch!



Hat tip to Calculated Risk

Northern Rock still lending ‘recklessly’

What else would you expect when the BOE, FSA and the government come to the rescue as shown in Northern Bailout / Chancellor Guarantees All Northern Rock Bank Deposits to prevent a crisis ...... Hard to believe that the first posts on this topic Bank of England To Rescue Northern Rock / Stock Tanking / BOE A Paper Tiger ? & Northern Rock- Here’s What a Bank Run Looks Like are just 14 days old......

Was anderes soll amn aiuch erwarten wenn alles was in UK Rang und Namen hat(te) ;-) zur Rettung einer nicht rettungswürdigen weil extrem agressiven Bank eingreift (siehe Northern Bailout / Chancellor Guarantees All Northern Rock Bank Deposits )........ Kaum zu glauben das die ersten Posts Bank of England To Rescue Northern Rock / Stock Tanking / BOE A Paper Tiger ? & Northern Rock- Here’s What a Bank Run Looks Like erst knapp 14 Tage her sind.......

Northern Rock still lending ‘recklessly’ / Times
Northern Rock stands accused of “reckless” lending after it emerged this weekend that the beleaguered bank is still offering mortgages of six times salary to potential borrowers.

Despite provoking the worst banking crisis for decades, the bank last week offered a reporter posing as a first-time buyer a £180,000 mortgage even though he had a salary of only £30,000.

The loan was at least £30,000 more than other leading lenders were prepared to offer. Repayments for the loan would have accounted for more than 60% of the fictional buyer’s take-home salary.

>And once again i have to quote Jeff Matthews "I´m not making this up". This ad campaign is real! Make sure you click on the link to see all ads... Link to NR Ad campaign. Comedy gold even without Photoshop

>Und bei dem nächsten Link muß ich wohl ausdrücklich betonen das dieses eine reale Anzeigenkampagne von Northern Rock ist. Undedingt alle Motive der Werbung "bestaunen" Link to NR Ad campaign. Comedy gold even without Photoshop.

>And you also should read this Northern Rock- No Words Just Pictures via the UK House Price Crash Forum.

>Und es wäre eine Schande sich den nachfolgen Link Northern Rock- No Words Just Pictures vom UK House Price Crash Forum entgehen zu lassen. .

bigger / größer to read the fineprint / um das Kleingedruckte zu lesen!

Hat tip to DissipatedYouthIsValuable

The reporter, posing as another potential customer, was also offered a so-called “negative equity mortgage” worth 117% of the value of the property he claimed to be interested in buying. The mortgages offered by other banks to the same potential borrower were significantly lower.....

Northern Bailout / Chancellor Guarantees All Northern Rock Bank Deposits

The action from officials ( chancellor, politicians, BOE etc...) reminds me of the great Smiths titel "Panic". And there is no other word to describe what is happening in the UK right now. If you can stand the CEO, chancellor, "experts" etc here is a good Media Blitz from Bloomberg / Video

Der ganze Aktionismus der "Offiziellen" ( BOE, Politiker, Chancellor, usw) erinnert mich an den Smiths Song "Panic" . Und Panik ist wohl das einzige Wort was die Lage in UK zur Zeit am besten beschreibt. Wenn Ihr mehr aus dem Munde vom CEO usw hören wollt empfehle ich diese Kompliation Media Blitz from Bloomberg / Video

With the houisng bubble just showing its first significant decline during the last few years i think the Kaiser Chiefs should press some extra copies of their I Predict A Riot..... ;-)

Wie soll das bloß werden wenn wie jetzt gerade geschehen die Immobilienpreise merklich zurückgehen. Ich empfehle den Kaiser Chief´s dringend ein paar Sonderpressungen von I Predict A Riot...... ;-)


Bloomberg Chancellor of the Exchequer Alistair Darling said the U.K. government will guarantee all deposits held by savers at Northern Rock Plc, a measure aimed at bringing to an end a four-day crisis of confidence in the bank.

``Should it be necessary, we and the Bank of England would put in place arrangements that would guarantee all the deposits in Northern Rock,'' Darling told reporters in London today.

The guarantee will be extended to any bank in similar circumstances, so long as it is solvent, a Treasury spokesman said.

> Mhhh, and who decides if Northern Rock is still solvent..... After reading news from Friday including their non existent loan loss provisisons, mortgage products etc i have some doubts ......And this at times where the housing market has just peaked.......From now on its only downhill........

> Aha, und wer entscheidet ob Northern Rock solvent ist...... Nachdem ich mir die Nachrichten vom Freitag mit den nicht vorhandenen Rückstellungen, wahnwitzigen Hypothekenprodukten usw habe ich doch erhebliche Zweifel.... Und das zu Zeiten wo der Immomarkt gerade das Top erreicht hat.... An jetzt geht es auf Sicht von mehreren Jahren nur noch gen Süden.....
Thanks to Hedgefunded

FT The UK has launched a radical shake-up of the protection offered to savers after the government was forced Monday night to guarantee the deposits of customers of Northern Rock, the troubled mortgage lender, in efforts to stem the growing crisis in the UK banking sector. Alistair Darling, chancellor, said the government would guarantee all Northern Rock’s deposits.

The Treasury said similar assurances would be apply to customers of any other lender encountering difficulty in the current turmoil. The FT has also learnt that the Treasury, the Bank of England and the FSA have begun reviewing the system for protecting savers, which only guarantees deposits up to £35,000, and are considering a US-style alternative to ring-fence deposits in event of a bank’s failure

And once again i have to quote Jeff Matthews "I´m not making this up". This ad campaign is real! Make sure you click on the link to see all ads... Link to NR Ad campaign. Comedy gold even without Photoshop

Und bei dem nächsten Link muß ich wohl ausdrücklcih betonen das dieses eine reale Anzeigenkampagne von Northern Rock ist. Undedingt alle Motive der Werbung "bestaunen" Link to NR Ad campaign. Comedy gold even without Photoshop.

And you also should read this Northern Rock- No Words Just Pictures via the UK House Price Crash Forum. There are so may excellent images and ads that a pimped up with photoshop like the following one that i really have almost laughed tears

Und es wäre eine Schande sich den nachfolgen Link Northern Rock- No Words Just Pictures vom UK House Price Crash Forum entgehen zu lassen. Dort sind haufenweise gute "Antworten" auf Northern Rock enthalten. Ich habe fast Tränen lachen müssen.

Thanks to DissipatedYouthIsValuable

Here comes another example of the famous British humor.....The reaction I got when I said I wanted to OPEN an account at Northern Rock

Hier kommt ein weiteres Beispiel des von mir sehr geschätzten britischen Humors.....The reaction I got when I said I wanted to OPEN an account at Northern Rock

Northern Rock- Here’s What a Bank Run Looks Like

If you have read the news from Friday it is no wonder that the customers act first and ask later......

Nachdem man die Nachrichten vom Freitag mitbekommen hat ist es wenig verwunderlich das die Kunden erst handeln und dann Fragen stellen....

And what would you do when you read the not so "rock solid" data like this....

Und was würdet Ihr tun wenn Ihr die "grundsoliden" Finanzdaten lesen würdet.....

Northern Rock has £80bn in mortgages outstanding supported by just £2bn of shareholders’ equity and £78bn of mostly short-term debt.

And the company has set aside only 0.04% for bad debts. On an average mortgage lent of around £180,000, this amounts to a miniscule £67.

A big hat tip to my friends from Housing Doom & New York City Housing Bubble





Please check the comments for updates

Für Neuigkeiten in Sachen Northern Rock bitte die Kommentare lesen

Bank of England To Rescue Northern Rock / Stock Tanking / BOE A Paper Tiger ?

No wonder the housing & mortgage market is more and more dominating headlines even in the yellow press...... And you know worse the situation in the UK is when Bekham; Kate Moss etc are not dominating page one in the yellow press...... ;-)

Bei der Marktlage ist es kein Wunder das es der Immobilienmarkt es sogar im Boulevard immer öfter auf die Titelseiten schafft...... Und wenn es weder Beckham, Moss, usw auf Platz 1 der Yellow Press schaffen muß schon ungewöhnliches passieren..... ;-)

Tomorrows headline will be including Northern Rock ( wich had an 18.9% share of UK net mortgage lending ) and the bank run ....... Make sure you read the updates in the comment section. This story has some extra large legs......

Die nächste Überschrift enthält sicher schon Northern Rock (die immerhin knapp 19% Marktanteil innehaben oder sollte ich besser sagen hatten) und den"Bankensturm"..... Bitte lest zum Thema auch die Updates in den Kommentaren.... Diese Geschichte wird uns noch längere Zeit verfolgen...

What happend to the "Virtuous Circle" from Northern Rock...... ? Looks it is now more a "Vicious Cirlce"

Was ist bloß aus dem gerühmten "Virtuous Circle" von Northern Rock geworden.....?

FT The Bank of England will on Friday provide emergeny funding to rescue Northern Rock, a leading UK mortgage lender that has fallen victim to the credit squeeze triggered by the US subprime meltdown.

Northern Rock, which had more than $200bn in assets at the end of June, is the first UK financial institution to be propped up since the BoE in 1998 revised the rules under which it would act as a lender of last resort.

14. In exceptional circumstances, there may be a need for an operation which goes beyond the Bank’s published framework for operations in the money market. Such a support operation is expected to happen very rarely and would normally only be undertaken in the case of a genuine threat to the stability of the financial system to avoid a serious disturbance to the UK economy.”

>Just a few days ago Mervyn King, the governor of the Bank of England said this

>Vor ein paar Tagen hatte Mervyn King, the governor of the Bank of England folgendes zu sagen

In an unusual public display of discord, the British central bank criticized other central banks yesterday for injecting cash into the financial system to help stabilize credit markets, saying that such a policy amounted to a bailout of investors who made bad decisions.

The main thrust of his written testimony to Parliament, however, was a sharp warning about “moral hazard” — a term used to describe the downside of policies that effectively rescue investors when their bets turn out wrong.

“The provision of such liquidity support undermines the efficient pricing of risk by providing ex-post insurance for risky behavior,” Mr. King wrote. “That encourages excessive risk-taking and sows the seeds of a future crisis.”

> Look at the next chart and watch what the housing bubble has done since they tapped the "lender of last resort" rule the last time in 1998.... Got gold....?

> Guckt Euch an was der Immobilienmakt seit dem letzten Eingreifen der BOE im Jahr 1998 performed hat...... Got gold...?

The Bank is expected to say on Friday that a similar facility is available to any other institution facing short-term difficulties.

> When i look at this chart they should worry about the longer term problems....

> Wenn ich mir diesen Chart ansehe glaube ich zudem das die wirkliche Problematik eher langfristiger Natur ist......

Bloomberg is reporting this
The Bank of England is confident about the quality of Northern Rock's mortgage book, the FT said. The lender has struggled with refinancing obligations, including mortgage- backed securities, the report said.

> Confidence in a bank that is offering products like this ?

> Vertrauen in die Kreditbücher einer Bank die Produkte wie dieses begeben ?

Say the value of your property is £100,000. You could get a secured mortgage of up to £95,000. And have the facility to borrow up to £30,000 unsecured loan for anything else.

You can draw on this £30,000 as it suits you. So, you might need £10,000 now and hold £20,000 in reserve.

> Too bad that they didn´t include the above 100% financing in the following chart... ;-)

> Schade das Northern im Chart nicht ebenfalls die 100% plus Finanzierung aufführt..... ;-)

> On top of this they seem to very optmisitic about the quality of their books...

> Zudem erscheint mir die Bank doch recht optimistisch was die Qualität Ihres Kreditbuches angeht......

The charge for loan loss impairment amounted to £56.8 million for the first half (2006 first half - £44.5million) representing 0.12% of mean advances to customers (2006 first half - 0.12%).

The combination of high quality lending, low interest rates, low early arrears and continued strong average LTV of the portfolio have continued to contain the levels of loan loss impairment provisions required for residential mortgages. Write offs in the first half amounted to £8 million representing only 0.01% of outstanding residential mortgage balances.

We do not expect to see a higher impairment charge in the second half than in the first half of 2007

> When i look at the growth rate it it clear that have been offering very agressive products.... I´m not sure if they deserve the help......"Moral Hazard" Mr. King?

> Wenn ich mir die Wachstumsraten ansehe ist klar zu erkennen das gerade Northern Rock ganz besonders agressiv im Markt unterwegs gewesen sein muß. Warum gerade dieser Spieler die Hilfe verdient......

The loan will be made at a ``punitive rate of interest,'' the British Broadcasting Corp. said.

``If someone was struggling and had to go to the Bank of England for assistance, Northern Rock would be first in the queue because of the way they fund their mortgages,'' Ian Murrell, a director at Wills & Co. stockbrokers in London, said on Thursday before the BBC report. ``It's all funded in the money markets,'' he said.

> No wonder that there is a good amount of mistrust between UK banks.....

> Wenig verwunderlich das es ein erheblichen Mißtrauen zwischen UK Banken gibt....

Northern Rock shares fell 4.9 percent to 639 pence yesterday, the lowest since March 2003. The stock has dropped by half this year, valuing the lender at 2.69 billion pounds ($5.45 billion) and making it an attractive acquisition target, MF Global Securities Ltd. analysts said Wednesday. The stock is the worst performer of the nine members on the FTSE ASX Banks Index.

You can add another 25% haicut......

Yesterday's action by the U.K. central bank was its first to help credit markets since the subprime market collapsed. Governor Mervyn King yesterday indicated the bank won't go as far as the European Central Bank and the Federal Reserve in helping banks cope with the credit rout because policy makers can't afford to ``encourage excessive risk taking.''

Commercial banks, which agree to hold a specific amount of money at the Bank of England at the end of each month-long maintenance period, can now undershoot that target by 37.5 percent to free up cash if needed. That compares with the usual limit of 1 percent.

> After reading all this i have to admit that my respect for Mr. King and the BOE is deteriorating significantly.......But as long as this comment is true "Northern Rock collateral to be similar to euro-zone banks" he is not worse than Trichet ( but this should be no compliment)....Too bad that nobody knows the exact details. The official BOE release does not provide further information ...... And the BOE should not complain about the fact that after their "U-Turn" the speculations are rampant...

> Alles in allem bleibt festzuhalten das mein Respekt für Herrn King und die BOE erheblich gelitten hat.....Aber solange diese Aussage zutreffend ist "Northern Rock collateral to be similar to euro-zone banks" ist er zumindest nicht schlechter als Trichet ( was aber kaum als Kompliment aufzufassen ist).... Dumm nur das keinerlei weitere Details bekanntgegeben worden sind. Die offizielle BOE Mitteiling hüllt sich dazu in Schweigen. Und nachdem die BOE eine solch dramatische Kehtwende binnen weniger Tage hingelegt hat darf man sich nicht beschweren wenn die Spekulationen ins Kraut schießen......

Disclosure: Short Pound vs €, long Gold, Goldmines/Hui, NAK