Tuesday, December 18, 2007

Northern Rock is Owned - by Us

£100 billion of loans and guarantees!!! £2,000 for every taxpayer in the country!!! WTF!!! If this isn't backdoor nationalisation I don't know what is. An utter shambles and a total indictment of the tripartite system of regulation introduced by...er... who was it now? Ah yes, Macavity himself. Gillian Shephard, herself a director of the Coventry Building Society, told Mervyn Kind of her concern about Northern Rock THREE YEARS AGO. The Mail on Sunday reported...
A series of senior Tories, including Baroness Shephard and former Chancellor Norman Lamont, challenged Mr King about the soaring level of personal debt.
They argued that many families owed vast sums and that the authorities had a
responsibility to take action before the problem became worse. Mr King said the situation was being monitored by the Bank of England and was under control. "The vast majority of the debt is secured against a property and it would be of concern only if that was not the case," he argued. After the meeting, Baroness Shephard, who was then a director of Coventry Building Society, pursued Mr King to raise the question of Northern Rock. She told him: "I am a director of a building society and we turn ourselves inside and out to make sure that nothing can go wrong with our finances. "We simply cannot understand how building societies that become banks, like Northern Rock, can undercut us with their borrowing rates all the time. What is happening? Where are they getting the money from?" Mr King dismissed Baroness Shephard, who was a Treasury Minister in Margaret Thatcher's government and Education Secretary under John Major, telling her: "Northern Rock operates under different rules because it is a bank." Baroness Shephard retorted: "I hope there is not going to be a day of reckoning." Baroness Shephard, who is chairman of the Association of Conservative Peers, said last night: "People did raise concerns about Northern Rock long before it hit trouble this year, but no one took any notice." A Bank of England spokesman said: "We have no comment."

Well they're taking notice now, as are all of us who are effectively two grand the poorer. Or at least, we could be.


Old BE said...

I predict an imminent abandonment of the "2%" target.

simonh said...

Not specifically about this post but I do feel that in recent weeks this site has gone from being a home of intelligent, amusing and broad-minded analysis from a conservative perspective to a source of Conservative propaganda. I understand that Iain has a political agenda but I feel that something has been lost.

Anonymous said...

Get yourself a Northern Rock mortgage fast. The Government is far too scared to foreclose the loan when you don't keep up the payments - especially if you live in the Labour heartlands.

Anonymous said...

Why is this being put out on the news media as £57 billion?

The exposure of nearly £30 bn of direct loans from Trasury and BoE seems to have been forgotten about.

I agree Iain - it is fast approaching £100 bn in total and that is very nearly the entire balance sheet outside of the Granite Trust.

No one is willing to lend to this bank other with 100% Govt guarantee or huge amounts of top quality collateral as security. Vince Cable is right - it should be nationalised. Not something I wanted to see ever again but this has got to stop.

The Military Wing Of The BBC said...

Any Chancellor that has presided over a housing boom looks like a genius until the housing market goes tits up.
eg Lawson, Barber.

Brown will go down in history as the man who broke the UK banks.

All that work in the eighties for nothing.

Where's his multi millionaire socialist/ Goldman Sachs economic advisor Gavin Davies?

Anonymous said...

So you'd prohibit the BoE from being able to offer such guarantees would you? Is that a policy commitment Iain?

CityUnslicker said...

Absolutley, I just wrote the same post. This is nationalisation and it can be dressed up hwo they like it, but that is what it is. The FSA should suspend the shares forwith.

I bet they don't!

Newmania said...

Amazing how often what is obvious turns out to be right however many clever folk complicate the issue and the insiders always know . .
Similiarly everyone in Insurance knows that since Licences were removed from the FSA into any EU members juridiction there will be a horrible scandal when the first unregulated monster crashes.

Iain Dale said...

Rabbit, where in my post did I say that? Of course the BoF should have the power to make guarantees. But I question their strategy on this.

Simonh - care to define what that 'something' is? I only ask because I have had several emails in the last week saying what a cracking read the blog is at the moment. Just goes to show you can't please all of the people all of the time.

Anonymous said...

On a point of factual detail, I don't think we have actually given Northern Crock a hundred billion, have we?

Our true cost is that we have lent them £100,000,000,000 (isn't it a huge number when written down?) at a rate which, however penal, is still less than that at which any other bank will lend to them. Otherwise one of them would.

Or true loss then is the spread between what the BoE is getting and what the market says NR ought to be paying.

I've no idea what that differential is, but it may be 2 or 3%. That is, they're paying he BoE 6% but it really ought to be say 9%.

This means that the annual cost to southern England of subbing Northern Wreck is two to three billion. Since it went tits up in September, the interest subsidy on the full 100 billion must thus be about 3/4 of a billion.

So it's bad, but it's not a hundred, right?

We should avoid Labour's dishonesty in claiming that White Wednesday "cost" £3 billion. It didn't. The Bank bought sterling in a falling market, and by the end of the day, those positions were out of the money. By a year or so later, they were in profit as the economy and exchange rate recovered. We actually made money out of it as the Bank used reserves to buy up something that proceeded to appreciate.

The old "Black Wdnesday cost money" is a vintage Labour lie we should challenge when it is trotted out and we should not do the same ourselves about NR. We are better than those Labour tapeworm and above such stuff.

Ed Keohane said...

****** ******* *****! at two grand a head for every UK citizen, surely it's time to enable swearing on this blog!

Chris Paul said...

We're not £2000 worse off, nor could w be, and Shepherd was a director of BS, but not any more AFAIK.

Old BE said...

Is this how we get dragged into the Euro?

Revenge for White Wednesday perhaps.

Anonymous said...

At the end of the day it makes bottler Broon look fully like the twunt he is, which is the required result.

@molesworth_1 said...

"Twunt". What a delightful word. I haven't heard it in ages. Under this govt. it is surely due a comeback..?

Man in a Shed said...

Its actually worse than Nationalisation right now - all of the liabibilities with no firm control or ownership.

Given what happened to Dame Shirley Porter over alleged politically inspired decisions (council flat sales I think ) to advantage her party - what chance of clawing back Gordon & Alistair's' fabulous tax payer funded pensions for this act of politically motivated intervention ?

Newmania said...

We're not £2000 worse off

We have the liabilities which may or may not be met.If someone opens an overdraft facility and uses it for their own purposes up to £2000 then I may not feel £2000 worse off but I certainly am.
The Socialists at Northern Rock were good at sneering at simple rules as well...( Same with Islignton Council under Hodge I recall)

Anonymous said...

Did anyone here read today's FT? There was an interesting opinion piece regards the government's handling of the TOTE privatisation.

In a spookilly similar fashion, Lloyds TSB had agreed a deal to take it over, before an 11th hour government intervention -referencing EU Competition Policy - resulted in the sale collapsing.

It looks like the TOTE is going to be sold now for less than was being offered then and years later than planned.

Now, as we all know Northern Rock was going to be snapped up by Lloyds' for circa 400-450p a share, until that is the treasury refused to allow the BOE emergency funding (C£30b) to the Rock be rolled over for Lloyds for up to two years.

As Lloyds TSB is one of the world's best capitalised banks, did no one at the Treasury consider what would happen if THEY were not allowed to bid? Where was an alternate gold plated balance sheet going to come from? If Lloyds needed £30b to do the deal, did no one think that any other organisation might need considerably more? And that the Rock as a stand alone entity would need even more again?

If the treasury had allowed the deal to go ahead with the funding in place for a sensible time frame, they might well have got out of it without egg on their face.

As we stand, just as with the TOTE, it seems the government will be the sole arbiter as to what happens with Northern Rock, and it is seemingly hamstrung by its belief that EU Competition Rules prohibit it from extending funding to any buyer of the bank at current levels.

As the piece pointed out, this does not augur well!

Newmania said...

I like the way the government can no longer refuse to bail out pensioners because they bailed our Northern Rock. Where does the arguement stop ? If my little company went under it would be a tragedy for four people.

Can we ...eeerm ..have some money...please

Anonymous said...

Labour knows they will lose the next election and are now just handing out the sweets whilst they can reach into the jar. What's £100bn here, £3bn there, and loaning out more £bn's to random banks, on collateral that is worthless?

And if they can mess up the Tories by ruining the country and turning it into a anarchistic, impoverished mess, what is not to love? Labour's voters don't have nothing they could lose anyway, the people who will lose out are those who vote Tory and who owned something they worked for, before Labour came along and grabbed it.

Sure, it may not technically be 'treason' but it bloody well ought to be.

Scary Biscuits said...

Labour = taking from the poor to give to the rich.

Stalin McSporran, good points. However, we have actually given £57 billion plust guarantees to NR. The cheques signed by the BoE are very real. The question yet to be answered is how much of it we're going to get back. Unlike Black Wednesday, which marked the end of a recession, NR appears to be marking the beginning. If NR is nationalised we would expect to see a positive return only if (a) it is competently managed by the Treasury and (b) if property prices come back up. (a) in particular seems unlikely. If (b) also turns out to be untrue or even delayed then it will exacerbate (a) and we can expect a loss of perhaps 50% of the loans and guarantees given to NR. That'll be about £60 billion or £2000 each then.

The most annoying aspect of this is that these losses will be covered mostly by average Britons on average (£20k p.a.) salaries. The mega rich, those whose loans to NR are now also being guaranteed by the Government, will lose nothing. New Labour = taking from the poor to give to the rich.

Anonymous said...

@ scary biscuits:-

Yes, my estimate of 3/4 billion squandered so far was based only on the cost to us of the BoE's cheap loans.

It did not include the impact of NR customers defaulting on loans enabled by the BoE's lifeline. Of those start to get written off then yes, we lose the capital as well as the interest.

I think cinnamon's comment above yours has it about right - they are now wrecking the economy on purpose and feathering their own nests.

Anonymous said...

The worst of it is that NR is NOT owned by us. When it is nationalised the govt will pay shareholders good money to buy it and then we will take the losses!

Anonymous said...

It is indeed a shambles. Worse it is a precedent for when house prices seriously fall, as they should because most of the value is the cost of planning regulations, & some larger banks get into trouble.

We should call in the receivers & let them sell it to Branson for £1.

We could, in theory, honour this blank cheque. We couldn't & shouldn't try twice.

David Anthony said...

Northern Rock nationalisation will be Gordon Brown's Clause 4 moment.