91Èȱ¬

Robert,

Thank you! at last an article which isn't based around the idea of the Rock being Satan's Banker.

More articles like this please, you are of course (as we all are) entitled to your opinion but its much more preferable that it be expressed as an opinion rather than analysis..

"And just to be clear, the Rock has confirmed to me that it needs this additional capital. But if its mortgage book is in such great shape, as the chancellor claimed yesterday, why does it need so much?"

This, as I have argued all along, is the crux of the matter, and why there is such a big risk to the taxpayer. This loan book was signed off by the FSA in the summer, while the good times continued and before the brown stuff had really hit the fan. The FSA's performance throughout has been lamentable, and I fear it has not subjected this loan book to proper scrutiny. Remember, this was a bank that tried to classify missed mortgage payments as "holidays". It did a surge of business at the start of the year at what was the peak of the housing market. A large number of its large loans will therefore be on property declining in value. I fear that if the loan book was studied again now, a very different picture would emerge. That is surely why a buyer can't be found to pay a reasonable price for what should otherwise be a bargain buy. You can bet that, unlike our gullible Chancellor and PM, any buyers will be doing their own independent checks of the loan book. So we have tens of billions of pounds of taxpayers' money committed on the back of a ticking-the boxes-style audit by the not-fit-for-purpose FSA. What a shambles.

The Rock board won't give him access to its books.

Say's it all!!

More like an episode of "Hussle" each and everyday.

So what is in the book?

Introduction by Del-Boy Trotter.

Page one reads - more than half the assets salted away offshore.

Page two - the other half is collateral to BoE for loans needed to pay off un-rolled over short loans.

Page three - merde.

If it wasnt for the 91Èȱ¬ and Robert Pestons initial reporting I doubt the situation would be nearly as bad, the british tax payer would certainly not be 24 billion down and a share price that has crashed!

Why doesn't Robert Preston leave Northern Rock alone for a change. He started the whole run on the bank in the first place with his scaremongering!

Perhaps Robert could enlighten me as to why the Chancellor keeps saying that the deposits are OK, and therefore his guarantee is not a risk to the taxpayer, because 'the money is in the bank'. Surely the money is NOT in the bank - isn't the whole problem that the deposit/loan ratio was wrong? The depositers cash is surely lent to mortgage customers and therefore the deposit guarantee is a substantial risk to the taxpayer if the roundabout stops!

Anyone looking at the market news today is aware that two other mortgage lenders have signalled a need to raise more liquidity. One by way of selling a loan book and the other by tipping its shareholders. Not confidence boosting events. The NR shareholders are going to take a big hit now. Flowers talk of nominal value is code for worth SFA. I saw the same transpire when the dotcom miracle companies crashed to earth, and were interred it. Anyone care to remember the nominal value that Baltimore Technologies traded at when the bubble burst and it tumbled out of the FTSE? This brings me to my second point: the listing. Plcs value the FTSE 100 and 250 listings for the automatic access to cash (through our good friends in hedge and pension worlds). Will NR retain its listing if it remains a Plc? If it is taken fully private, the ordinary shareholders will end up with untradeable equity. Ok,there is the staff, the mortgagees and the taxpayer to consider, but ultimately the shareholders are the ones to whom NR is answerable. It is limited company afterall. For the best of motives, I am sure, but the insertion of the Chancellor's office in this affair is muddying the discharge of that responsibilty. It is time to let the market beat the bushe rather than throw more good money after what has a high risk of going bad.

All of NR interbank lending is at the LIBOR rate that presently stand at 6.4% (3 month). As most of the loans are A rated NR would normally pay only a very small premium on this.
The capital is very secure, NR mortgage lending was quiet consevative. But other banks do not think that NR is a good enough financial position to payback the interest on these loans.
So NR cannot afford to pay even this LIBOR rate on a 'normal' inter bank loan. It seems likely to me that NR has too many low interest mortgages that are not fully hedged. The other banks know this and will not lend the money to NR. This situation is not about a world wide liquidity crisis or the value of NR mortgages. It is all about the profit/loss on NR mortgage lending

NR financial position will be weak until the base rate or LIBOR rate falls or most of its fixed rate mortgages have completed their terms. A lot of course depends on how the 'profits' of the older mortgages appear in the books. It is possible to book all the 'profit' from a fixed 2 year mortgages deal on the day it was sold rather than over the 2 to 5 years of the term.

I am frankly amazed that any company would seriously consider buying NR after weeks of revelation after revelation regarding the shoddy way in which the bank was run. Who in their right mind is going to buy into a mortally wounded company which owes billions to the only people who can really bail it out by becoming its customers but who now wouldn't touch it with a barge pole (the taxpayers)? Let's face it, when there is more concern being voiced about the shareholders losing money than the chances of the £24bn in loans being paid back, you know the company is no longer viable.

The company had a successful operating model up until the credit crunch. Bigger players that it have been hurt by this including the big boys in the USA. NR just didn't have the clout to weather the storm and needs support. If the Treasury hadn't made such a mess of things, we wouldn't even be talking about this. If we want a bank to collapse were then lets keep on talking up a storm. Who benifits from a collapse no-one so lets try and make sure it doesn't happen. If we want recession just keep on the way were going. Banks going to the wall is the quickest way to ensure a stock market collapse and major long term recession.

To pursue my notes yesterday on the inflationary effect of the Chancellor's policy, please follow the Bank's daily money supply data published at Readers are well advised to peruse the Bank's policy documents carefully, as she appears to be sailing into unchartered waters.
And please don't forget there's a second elephant in this room, the Private Equity debt portfolio.

As I said yesterday, the government must act NOW to prevent the situation from deteriorating still further. It's quite clear to me that none of the "rescue" packages from other parties are going to free the taxpayer of the massive financial exposure that Mr Darling has given us. We may as well be realistic about the inevitable otcome and end things sooner rather than later.

This site deserves greater coverage as the comments registered within make great reading.
I almost get the feeling this is turning into a north v south situation when it most certainly should not.
For sure NR did not start the credit crunch but its directors showed the same level of incompetant management as those with commission blinking before them have. Believing you could lend to someone who couldn't pay back and to cover your stupidity just up interest rates and assume all is hunky dory and if they default well tough I've got teh commission and have moved on so who cares!.
NR directors condoned borrowing short and lending long the 2 are only compatible when interest rates stay put.
But they should have had a contingency plan to accommodate rising rates knowing nothing stays the same forever, and the FSA should have checked when NR's operations were so diametrically different from any and every other lender.
Without looking at all the communicatios between the FSA and NR we can only assume they were all asleep on the job and gettig paid handsomely as well!!
In effect it was the blind leading the blind. Now we are all indirectly involved in this major mess when there was never a need to be.
The Chancellor must go by the weekend whether he likes it or not, the Chair of the FSA should resign as well given he had kept on reiterating NR was solvent which it was not.
Idealistically Brown should call an election and let the B of E do what it does best.
Any bid for NR is a gift to shareholders as there is nothing intrinsic to buy save a name. Good service will not alone generate good management.
The potential buyers should be given access to the books and told that the state will not support NR after February, If capital markets are to work effectively then this is a classic test.
The key thing is for the public purse not to be strangled by the incompetant largesse of politicians who have never done a real job in their lives and have no concept of how to work this out.
Finally Cameron must get off the shelf and propose the conservative solution not leaving it to Osborne. This need gravitas and whilst Osborne is always good for a punch line this is a job for the leader.
This is real economics and real politics which need leadership to be shown and to date neither party has shown themselves capable. That must end.
Normally the view is X got him/herself into this mess,they are the best person to get themselves out because they know the company. Rubbish it needs fresh thinking and authortive leadership which the NR board, the FSA and this Government appear incapable of offering.
With a massive clear out we can then return to our daily lives of inflation, cold damp weather and watching Ken Livingstone party on in India at our expense.

Robert's a reporter? He found a story which had implications for the British public and their money and he reported?
Northern Rocks management team paid the price for their aggressive decisions and poor risk management and put a lot of jobs and public wealth at stake. Unfortunately, the average Joe can't walk away with an Applegarth-esque settlement and will be thanking Mr Peston personally that they're not involved with a company whose lack of diversification put their life savings at risk.

I aggree with Dom Strutt & Rob Mcloughlin. Peston should back off and stop being so one sided against the bank all the time. I bet up until the Summer he was singing the Rocks praises as a highly respectable bank, just like everyone else in the finance world. His sniffing around like a media rat, desperate for a story is what caused the unnessecary run on the bank in the first place. I hope you are thinking of the 6,000 workers at the bank who all have families while you write your articles which constantly condem it.

How would a rights issue work?

I can't see the logic myself, shareholders have already lost a significant amount from the dramatic fall in the share price. Why would they be willing to put there hand in there pocket further. It would be like throwing good money after bad.

A rights issue may however help the Hedge Funds settle their outstanding obligations in relation to shares they have been selling short over the past few months.

This may be why this idea is being talked up.

typical peston reporting, scaremongering to get a story. you started this whole thing and you wont be happy till youve finished off the company and made 6000 people unemployed. all in a good days work eh mate?

i know this comment wont get posted but why are the bbc being so biased on this, i guess anything to get a juicy story.

quiet news day eh?

Enough is enough now, just let it die. It has no right to expect public money to bail it out anyway. The little shareholders (who for the most part didn't buy their shares anyway) are protected. The bigger ones are for the most part 'professional' shareholders and know the risk of playing the game.

Rover, FarePak, British Steel, National Coal Board, British Rail - all had the rug pulled away. Why NR should be any different God knows.

Another elephant in the room??

Is the circus in town??

Re posters criticizing the 91Èȱ¬ and Mr Peston.

The Rock was a going concern whilst it could depend perpetually upon borrowing on the never-never. If an ordinary citizen tried the same trick he/she would soon be bankrupted and lose all their assets.

We need the 91Èȱ¬ and its reporters like never before to keep breaking stories that concern us. We need the truth - it is out there - but often buried.

Bird flu - MRSA - Shooting innocent citizens - Sexing up dossiers - Phone-line scams etc. etc.

Should they too be kept quiet and swept under the carpet?

Dope and Religeon, Sex and TV.

Still and all - it is only my opinion. Have a good day!!!

Dear Robert,
The banks crocked, Grab yer mooney and run,
This is rail track mark two.

Hello Robert,

Thank you for sticking with this issue - at least someone is prepared to let the public know what is going on at NR.

I sense that we have now reached the endgame of this sorry mess and the only winners - yet again - will be the speculators.

When oh when, will the so called 'financial experts' ever learn?

Never probably!

Surely there are only two types of shareholders left - those hoping to make a killing out of the rescue and those whose shareholding has collapsed so much it isn't worth pulling it out. Either way, shareholder considerations should not be driving this. The employees are mainly in call centres which could easily be sold to other financial companies so their needs are also less important than has been stressed. It is time Mr Darling put the fact that taxpayers have put in £900 each - an amount equivalent to our average council tax - without even being asked as key to his deliberations. It is time he did something to protect this.

Margaret the NR model wasn't sound it was inherantly flawed. It's a bit like saying that a property portfolio without fire insurance is a successful organisation until the buildings burn down! The business plan was fine until things went wrong and they couldn't roll over borrowings. The real issue is how did the board and the FSA not see this flaw in the business plan?

If I was Northern Rock's D&O insurers I would be very worried!

Like Jel says the private equity issue is potentially a much bigger and much more frightening elephant in the room.

Over the last couple of years a considerable number of household names have gone down the private equity route and if or when the debts are called in there could be real problems.

Boots and the AA being two of the more prominent private equity flagship companies. If one of them went down the river, so to speak, it would make the issue with Northern Rock look like a mere bagatelle.

nobody seems to care about the shareholders , are the board so stupid that they would rather see the bank fold than give somebody like olivant a go . they should all go and not take a penny in bonus pay or compensation

Well, well, well. I have no sympathy left for anyone in this story - except the tax payer, who will ultimately loose out. I too wondered why NR required the BoE loan, unless it was looking for more businesses (issuing further loans / mortgages). Now it's really in trouble because no bidder (remember they're businessmen - not charities) is going to pas up the opportunity of getting 'free handouts' from the Government. Do not expect a bid to be anywhere near the true value. Unlucky shareholders - it's like Railtrack all over again. The longer this goes on, the worse the decision looks by the Government to guarantee the deposits of NR. I do agree however that the entire episode was caused by the media who made it clear - 'Panic - Don't Panic!' - too late all the people panicked. Slow hand clap for those investigative journalists who do not understand the subject and the danger they pose to the public and banking system (in this case). The only people who will not be affected are non-shareholders, non-savers (in NR) and non-taxpayers - i.e. the queen, who I am certain is relieved not to be about to suffer losses like everyone else.

I take it that the arrogant ex-directors of this total worthless bank will be treated as bankrupts, and be barred from holding any position of responsibility for the appropriate period of time. Or will they just walk away from the disaster they created scot free?

Government has no mandate from the Electorate to interfere with the current market forces that are affecting Northern Rock. Propping up with public money a failing private institution is tantamount to stealing from the public purse.

I am beginning to think that Peston is more a provocateur than a reporter.

He is well aware that in the U.S.A, the federal reserve, and in Europe, the E.C.B, provide a back-up money market to provide liquidity to commercial banking operations.
The fact that the U.K does not have such a facility is the real issue here.
Darling may be in a hole but unless pressure is brought to bear to introduce such a facility,matters can only have a disastrous outcome.

The paradox to me is that, on the one hand Mr Darling rubbishes the Tories plans for Inheritance Tax on the basis that its billion or so cost is unaffordable, and yet we now see the same man effectively proffering a blank cheque signed by the taxpayer to sort out a mess that's mostly of his government's own making. It's amazing how money can be found to save face, isn't it?

Robert

I entirely agree that there is a false market in NR shares. There is clear evidence that various parties have been given access to information not available to the vast majority of shareholders (e.g. the injunction granted last week), and the false market has created unreasonable expectations among many shareholders.

I feel that the current debate on NR would benefit from some of the lessons that could be learnt from the last round of banking failures in the UK in the late 1980s and early 1990s.

A number of small banks and finance companies ran into trouble, ostensibly for a variety of reasons, but the common thread was property lending – both on commercial property and sub-prime mortgage lending – and over-reliance on interbank funding which evaporated as the banks’ problems become more apparent.

One message from this period is that when a bank’s management makes serious errors in one area of the business, it is likely that they will have been weaker than their competitors in other areas. While the banks in question in the 1980s and 1990s failed because they ran out of cash, the subsequent work-outs identified imprudent lending practices and poor operational standards. Northern Rock’s management failed to understand the risk they were taking through the bank’s funding model, and we should not be surprised if we subsequently discover that they were not the best in the industry in evaluating and managing other risks, including credit quality and operational risk. The question of ‘payment holidays’ for Northern Rock borrowers experiencing payment difficulties may well be the tip of an iceberg, and a stagnant or falling property market will exacerbate such problems. The decline in net worth that you have identified is likely to be the start of a much bigger slide.

To my mind, ignoring the question of supervision and looking solely at the position that faced the authorities when Northern Rock realised it was running out of cash, the one mistake they made was to guarantee wholesale deposits as well as retail deposits. A blanket guarantee of retail deposits would have prevented the unique risk of a run on other banks by the public, while a credit loss for the professional lenders in the interbank market is hardly a new feature. When banks such as Chancery Bank, British and Commonwealth, Provincial Bank etc. failed, the interbank players took an active role through creditor committees in sorting out the way forward, and this would probably have been of benefit this time around.

The problem the authorities have now created is that the interests of Northern Rock’s biggest creditor – the taxpayer – and the interests of the shareholders are incompatible. There is clearly no prospect of a ‘bid’ for Northern Rock that will repay the Bank of England funding immediately and also be acceptable to shareholders – and it is of course shareholders who vote on a bid, not creditors.

Accordingly there are only two alternatives, of which the first is foolhardy:

1) Allow a ‘bid’ that shareholders will accept to go ahead by committing government funding for a number of years and explicitly accepting commercial risk – i.e. losses -for the taxpayers’ loans. This means an unknown degree of subordination for the taxpayers’ claims would be unavoidable, and the likely future losses large. The taxpayer would then both be supporting a bank that took bad decisions and allowing a bidder to anticipate a profit at the expense of the taxpayer – moral hazard of the highest degree.

2) Recognise that if the taxpayer is to maximise the recovery of its loans, Northern Rock needs to be moved into work-out mode as quickly as possible. The mechanism is simple – if the government asks for its money back then Northern Rock has no alternative but to go into Administration. Retail depositors could be repaid in full over a relatively short period, demonstrating the ‘value’ of the government’s promise and restoring some degree on confidence for the man in the street. Sadly wholesale depositors would probably be able to demand repayment as well thanks to Mr Darling’s generous decision – although some of the major banks might be persuaded to stay in with a continuing undertaking from the authorities. The assets can then be realised (either by the administrators or by a management appointed by the government) for the benefit of the main creditor – the taxpayer – over time. The performing loan books are probably saleable without any large discount even in the current strained market, but the true level of poorly secured and problem loans will only be known once the book is under proper experienced management. The task will be large and the professional fees far from small, and the taxpayer will in all likelihood never recover its loans in full. The only consolation is that the taxpayer will not incur additional losses because of the profits being earned by a new owner.

One again. Nothing but PURE SPECULATION from Mr Peston with great line of fool's hanging on every word he says and agreeing with everything he says on his blogs.

would anyone really care if this bank was not based in Labour hartlands ? at the end of the day the gov has ignored the FSA rules ( once again a case of do as i say not as i do.) The city are going to make the Government pay for this by driving down the share price until its worth abs nothing

NR would have had access to funding in the money markets at the time of the crisis, but certain sharks made sure that the price was at an unacceptable level.

Every operational model has weaknesses and if you are small you have less ability to copy with significant change. Were the board asleep at the wheel. I doubt it. Were the board naive. Yes. This debate is going to go on and on until we all finally find something better to do with our time.

Christmas this year for all the staff at NR is going to be incredibly difficult since they don't know whether they will have a job next year and I really feel for all the families. Its not the staff's fault for this mess. Its the government, BoE FSA and NR board.

Did the Conservatives bail out the Bearings or BCCI? No of course not. The fact that this is in a Labour heartland with share owners who became such when it transferred from a building society just reeks of buying future votes.

Let the damn thing sink.

Maragret, you say the NR was successful "up until the credit crunch". But there was a credit crunch, and then it wasn't successful. While it is sad that shareholders will lose out (and probably empployees too), I don't imagine any complained at the dividends that were generated in the "good" days, and most invested in order to make money out of it. Well, that's the risk. Invest in a mangement that is doing risky business (whether you know it or not) and it all goes well until the crunch: it's the way of the world. The reporting may fuel the problem, but are people really suggesting that the news be censored? It's true, incompetence from the FSA and government helped fuel the problem, both by not recognising NR's precarious risk taking, and by not acting faster when the problem became public: but all in all, the problem lies in NR's management. Rob Mcloughlin claims the problem was caused by the reporting: sure, if you deny people access to the truth, sometimes the result is better for everyone: er, but we do support freedom of information, free press, and are against censorship, aren't we? Or do we need to be lied to so that the economists and financial managers can continue to "earn" their vast salaries and we can live our lives without worry (until the very real money gap caused a very real bankruptcy)?

Dear Robert
This so called disc lost by HMC, big big if this one. It not LOST its buried to hide more bad news for the chancellor on tax credit LOSSES.

Northern Rock shares are going to shoot up this week guaranteed. Everyone should buy

Why cannot NR do a Bradford and Bingley and sell some of its loan book in order to raise cash?

Like many others I am dubious about how solid the supposed 120 billion of reserves are.

These are just either unsecured loans or secured against now falling property values.

Hardly suprising that the bidders expect to get the company much cheaper than the share capital would suggest.

A NR shareholder would be mad to throw more good money after bad in a rights issue. This company is rapidly going bust.

I am also very dubious now that the tax-payer will get back what he has put in - better cut our losses and just recover what we can through liquidation.

Robert, when you first broke the news about Northern Rock did you expect that the board would be more forthcoming about the bank's situation?

With shareholders forced to receive news from the media (you included), are you not concerned that you are helping to create the false market in shares that you are writing about?

Unless the board publicizes details of their BoE loan and current trading conditions, investors have no meaningful way to value the company.

I want my £900 back and I want an election RIGHT NOW.

Some of the comments attacking Robert Peston are strange - and clearly show that the people writing them have no idea how financial markets work. Markets don't listen to one reporter and then decide to bring a bank down - in financial circles, NR was being touted as one of the bigger names supposed to be in trouble since July/August because the funding model they were using was unsustainable in tight market conditions. NR was successful and lauded for earning good returns precisely because it used international markets to raise funds, avoiding the costs involved in running a branch network. This advantage quickly turned into a big disadvantage when the markets started to seize up and it became hard to raise money - all of a sudden, NR could not access the money it needed to run its business (since banks/other lenders in the markets were not willing to lend) and it had no deposit base on which to fall back on. Traders in the market realised this, and started selling/short selling NR stock. This drove the price down, bringing the issue into public view. Word got out, some people started to withdraw their deposit. TV cameras landed up, flippant use of terms like "bank run" started, and this meant that investors who had not thought of withdrawing their money started to queue as well. The Treasury/BoE/FSA's inept handling then ensured that instead of a quiet behind-the-scenes settlement, the whole thing became a public spectacle.

It must be hard for people whose jobs are linked to NR to read bad news about NR everyday, but to say that a reporter who reports on what is going on is responsible for the mess that NR finds itself in is incorrect and immature.

...and what about the staff?

Robert you wonder why the bank needs this money? Maybe it is something to do with reporters like yourself stoking up the fire and causing the mad panic on the streets. If only we could get rid of reporters and the lawyers then we would all be better of in this world. Thanks again for runining my retirement Robert hope you sleep at night.

Two other infamous institutions that blamed the media for their problems: the Bank of Cocaine and Counterfeiting and Enron.
The sooner the wreck has been identified as the Ponzi scheme it surely is the better for all of us.

p.s. don't forget DEREGULATION = MORTGAGE FRAUD!

'B' is the new 'M'.
How long will it be before 'T' is the new 'B'?

Andrew, you mention that the government didn't bail out Barings or BCCI. Total different situations although when traders saw the futures positions that Barings had outstanding they took opposite positions to punish the mistake. Thats what banks, fund managers do.. If they see an oppertunity to make money for their shareholders and for the traders themselves the go for it. This is also the case with NR. Short selling has ensured that a large no of organisations in the city have walked away a hell of a lot of money unlike the average man in the street who only sees losses.

Robert,

Your opinion is valued, as it always is, but many more similarly themed articles on NR will start to convince lots more people outside of the North East (you've already lost those), that you're interested in this line of reporting not for the story, but more for self fuelling publicity.

Are you trying to finish this bank off by yourself? -you've already played a stong part in bringing it to its knees...

Would the current Chancellor of the Exchequer Mr A Darling be any relation to the Transport Secretary Mr A Darling who presided over the Railtrack & National Rail fiasco?

I do believe it is the same person!

This might explain why the share price collapses everytime he opens his mouth on the subject of Northern Rock!

Margaret obviously feels very personally involved in this and she may well be an employee or ex employee or related to an employee but the blame for all this lies with the management and them alone.

The support given to Northern Rock must seem bizarre to all those sold down the river by this Labour government at Rover, Peugeot, Corus and many others.

£ 24 billion in loans compared to 6,000 employees works out at £ 4 million per employee.

Bye bye Bradford & Bingley. You know it's coming. This is the bank whose strategy in the spring was focused on buying sub-prime mortgage books. £2bn for the Kensignton sub-prime book I seem to remember?

Rahul, reading your comment was like a breath of fresh air. Those who criticise Mr Peston for doing his job would also have complained had he not reported NR's problems.

Northern Rock's board seem surprised that the offers made for the company value it at less than the share price on Friday. To me, this is just another example of their naivety. The reputation of their 'brand' has been tainted beyond repair - anyone buying the company will want the good stuff (the fabled valuable loan book) and not the bad (the BOE debts). Heads should have rolled there a long time ago.

I think we should nationalise NRK and call it the 'The Bank of England' because that is exactly what it is at present. Its run by the government and it's funded by taxpayers...

Frank.

Good post from Paul S (#32), but...surely there's a huge difference between:

- Putting NR into administration, in which case the job of the administrator is to sell off loan book and other assets for what they will fetch in current market...which could well not be enough to meet NR's liabilities, and would put mortgagors' contracts into the hands of buyers who might take a "slash and burn" approach to interest rates and other terms (not good PR for Government)

- Putting NR into run-off, with present Treasury/BoE terms remaining in force but no new lending. If FSA was right that the company is solvent, then the Treasury will get the intended return on its funding and shareholders might even rescue something from the wreckage. If not, then the cost to the taxpayer ought to be less than that of the administration option.

Unless a buyer offers terms that look more attractive, isn't run-off the least bad option?

Robert Peston seems to be single-handedly trying to bring down this government by creating a run a Northern Rock and other banks. Biased 91Èȱ¬ reporting is damaging both the government and the British economy.

Oh dear, oh dear. What to do. The public have loaned NR @ £900 each, on which they're receiving a return of 7% (£63 ??). Nice one Joe public. All caused by flaws in the NR business model.

Now it emerges that the Govt have flung who knows where the personal details of some 25 million recipients of child benefit and opened basically everybody up to the possibility of identity fraud which could COST (note not a loan, but COST) anyone of us thousands of pounds. dare I suggest a flaw in the operations of Darling & his boys, and therefore don't you agree that the Govt should be 'allowed to sink'.

The real problem for me is HOW ON EARTH IS PESTON GOING TO BE ABLE TO BLAME THIS ONE ON NORTHERN ROCK. I'm sure he'll find a way though. He usually does.

Robert, if you were a decent man you would be considering your position after contributing to a run on a high street bank, the near collapse of said bank and the ensuing uncertainty and stress which now engulfs the shareholders and staff of said bank.

By the way, where are thre articles an paragon, Bradford & Bingley, Alliance & Leicester and Barclays. Be honest those of us 'familiar with the situation' know what is happening in these institutions as well. Though I guess you don't have a personal vendetta against these organisations.

If the loss of these discs wasn't so potentially serious, it would be bloody hilarious.

But on a questioning note, in these days of secure encrypted networks and communication devices, why on earth was it necessary to send this information on two discs by carrier pigeon ?

Lay off the Rock Robert, you've had your fun and done enough damage, for gods sake let it sort itself out without your damaging interference !

Andrew, I can't get over your insensitivity and lack of caring for ordinary, hard working folk. The North may be a Labour heartland but you can't say 'let it sink'! Party politics should be left out of it.
Jobs with good employers are not that easy to come by (especially in the North) so have a little compassion for people. We are weeks away from Christmas, glib statements like that are unneccessary. The fault lies within the NR, but as usual the people who will pay for it will be those who can least afford it.
I'm a small shareholder and obviously would prefer to get something out of it but it's nothing in comparison to people's jobs and livelihood. I think people should think before they talk like that.

Improbably caught between a rock and a hard place are two reformed radical socialists from the 1970s having to sort out this growing crisis in early 21st century capitalism..

The New Labour leadership's unstinting admiration for the market was,sooner or later, always going to rebound on it.

And you would have to have a heart of stone not to laugh through the tears.

As for the bankers?

Well isn't there an old joke about bankers' behaviour in a credit boom.

Like watching a drunk staggering about after 8 pints of beer.

You know what the end result will be....

Its just a question of which tree they choose.

The £24bn is not just for the 6,000 employees but for the one in 5 mortgage holders at NR. If you have a mortgage and its verging on sub-prime quality or is sub-prime then no one else is going to take you at the moment. Whats going to happen to your home if the company goes bust? Whats going to happen to the stability of the markets in the UK. Its not just about NR. Now B&B are selling off portfolio's. Consumer confidence needs to be maintained otherwise the house of cards falls. All it takes is for panic to set in and the whole economy can start to fall a part.

Mortgage deal of the Year:
Northern Rock- 125% Mortgaged.
(Subject to non-status)
Interest Rate -Low, various parties.
Term - Indefinite.
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Yep, it's all Robert Peston's fault. Not the management, or the FSA who let them do their worst despite knowing (according to them) all along what was coming. Shame on you Robert for single handledly bringing down the world's banking system.

And another thing, is it me, or does Adam Applegarth really look just a bit like Nick Leeson?

Thanks, Robert for elucidating on the price for the loan. The politicians have been lamentably coy on the conditions attached to the BoE loan.
I think we should all, as UK taxpayers, be unhappy that our money is being loaned to a sick bank at nothing more than base rate. That is a huge subsidy, from those of us who didn't place our money with the Rock to those of us who were greedy and put their money with them because their interest rates were always so high. The Govt is using our money to protect depositors who chose their bank on nothing more than headline rate. This seems very wrong.

* on 20 Nov 2007,
* David wrote:

'B' is the new 'M'.
How long will it be before 'T' is the new 'B'?

I am struggling with 'T'

But noticed in Old Moore’s Almanack than in January - Wanless to be new King.

Can we have a declaration (or denial) of interest from Mr Peston? Does he currently hold a position in NR shares or options? Has he traded any shares or options in NR this year?

Why does Rock need £1bn?

Northern Rock's chief executive, Adam Applegarth, will resign in January. He is likely to receive a pay-off of about £345,000.

If this IS true then I am disgusted.

I hope shareholders and employees are equally disgusted.

I continue to pay my NR mortgage of about 215,000. However, I'm at an interest rate of 5.19% until 2011. If LIBOR does not come down, NR will loose plenty of money on my mortgage.

Note that I'm not a sub-prime borrower, or in any financial trouble, so the money will be paid every month, but even this good solid mortgage on their supposed solid loan book is going to loose them money each and every month.

And in 2011, I'll probably switch providers. NR clearly took massive risks to win business, and those risks have failed them.

The commments of people blaming Robert Peston for what has happened to Northern Rock make me extremely angry. They display their ignorance as to what has happened and to what is still happening in the economy at large.

As has been stated many times above Northen Rocks was brought down directly by bad planning on the part of the directors non forseeing the coming credit crisis. The credit crisis is part of an ongoing worsening of economic circumstances which I dont think even the most ardent of the above critics of Mr Peston would blame him for. The people who we need to blame for the coming turmoil are the banks who have loaned huge sums of money to increase their profits, the regulators for allowing them to AND the foolish people, who have without thought, taken out those loans to buy overpriced 'assets' and frivolous consumer goods.

That's economic reality and we need people like Mr Peston to tell it to us straight. If we are adult enough we should be able to handle it.

Robert - please ignore the embittered shareholders and employees of Northern Crock who criticize you. You are doing a brilliant job at exposing the naivety and stupidity of NR's management, and the degree to which the Chancellor of the Exchequer is out of his depth.

Well done, and please keep digging and posting!

A Bank run by incompetents who lent money to those who could not afford it and risked losing their clients a bundle as a result.

Who am I talking about? The BOE of course!

However on top of that this outfit could not even keep it's clients accounts confidential.

Isn't it time the board resigned?

Mr Peston, is not time that you prooved that you are the 91Èȱ¬ business editor and try some balanced reporting rather than this vendetta against NR? I look forward to your blog on Paragon, B and B and A & L. Hang on oink,flap,oink flap, still it was worth a try !!!!

A fascinating post David Hill (20) & very well informed. Perhaps you should consider adding to your list Gordon Brown's decision to sell off a huge proportion of the Nation's Gold Reserves not too long before Gold prices soared to a 30 year high. Timing is everything, a bit like Elections really and Gordon may find he's already missed his best chance, as the incompetencies pile up around him?

Is the circus in town? Undoubtedly - either that or the inmates have taken over the asylum. A troop of clowns is about the only term available for a group of supposedly-responsible ministers who fail to disclose the loss of a large amount of personal information concerning half the population for ten days, fails to tell the rest whether or not they were on the list, fails to reissue them with new NI numbers to replace the compromised data, fails to tell their banks which accounts are compromised so the numbers can be changed, and leaves the banks to pick up the tab for any consequential losses. Quite apart from the cost of all of this, and the failure to accept any responsibility or to take any proactive grip over resolving the resulting mess. It now turns out that Edward Leigh's been able to establish the Chancellor's statement was inaccurate as well in several legally-critical areas.
The Chancellor's latest piece of presdigitation* means anyone with sense empties his account tomorrow am, before some joker does it for him. Or perhaps that's exactly what the government wants, so they can take over the rest of the banking system at the same time?
* Presdigitation: keeping one's thumb on things. Pro-state: defence of the Realm (or in this case, power).

Robert,

Perhaps your sources may be able to confirm the following.

Is the £1 billion pounds the Rock needs before or after the generous settlement packages to resigning members of the Board of Directors?

As Mr Darling, Mr Brown, the Treasury, FSA and Bank Of England appear to be pre-occupied with the political implications of Northern Rock, perhaps they may be grateful for the opportunity to take some decisive action over Northern Rock that might genuinely do some good for taxpayers and shareholders.

Foolishly I believed the chancellor and the FSA when they repeatedly went on record to confirm that the bank was solvent during the height of the run. On the back of Mr Darling's reassurance I bought some shares looking at the longer term. It would appear that I have been sold a pup!

If Mr Darling had given me similar positive advice regarding the purchase of a car that he knew was destined for the scrap-yard then I would be fairly keen to have a chat with him...

I am getting a little fed up of this government's constant lies - they seem to think that they are entitled to treat the electorate like complete idiots time after time without accepting any responsibility.

Well another day another step closer to Mother B's nightmare; the nationalisation of the Rock. What did he say to Conference a couple years back, at our best when we are Labour. So Cableman may get his wish for Christmas and see the Rock formally tranferred into the land of public rather than private incompetence because Mother B is fast running out of options (and I do mean fast) to get this out of the news. Note the Cableman spoke about public ownership but said nothing about changing the crummy business model. When I bumped into my old mate Tubby Isaacs earlier today he said that Mother B seemed to be off the jellied eels and was looking distinctly pale around the gills. Ally D would be well advised to make himself invisible in the next couple of days because another weekend of bad press could see him organising knees ups in the department for community cohesion. Trying to second guess the real cost of this affair is a mugs game because the situation is more fluid than the sauce on Mother B's pie and mash. One thing looks clear there is not going to be a happy ending for the taxpayer, the employees of the Rock who were let down by their senior management and for Mother B who was in the wrong place when decisive action was required and failed to step up to the plate. Well must rush the band is about to strike up again and there is a rumour that Mother B is stuck under the table.

Having just watched the 10pm news, I cannot believe that an educated business journalist can not understand that,what maybe regarded as humour in relation to a serious financial matter, can worry and concern vulnerable people resulting in making the situation worse. Viewed from outside the Westminster circle, it may seem as though the fall of the financial system and therefore a change in Government was the desired result. Surely that is not the aim of 91Èȱ¬ personnel, is it? Can we get back to reporting on news and commenting, in a sensible manner, on it.

Why oh why do people continue to blame Robert Peston? Aside from running the best blog around, it is Mr.Peston's reporting that gave people a warning about a collapsing bank. Northern Rock Board never showed any concern for its staff shareholders or depositors: what if the bank collapsed because the conditions were different and there wasn't a threat to the banking system just no one wanted to fund the Rock? Would NR have given a warning beforehand? Or would savers wake-up having lost everything. It was the seriousness of the conditions that saved Northern Rock. If its collapse didn't threaten the system then there would be no B of E loan from a Governor that believes in moral hazard. Why blame Robert Peston? His report was in the public interest.

The reason why, I think and hope, Mr.Peston returns to the Northern Rock is that its fate has huge implications for us all. Either we're going to have a nationalised bank, or one in administration or the 5th largest bank in Britain is going to the wall. And the consequences don't stop there. IF HMG are still funding the bank when there are foreclosures then this becomes a huge political issue: will the government be directly connected with a group re-claiming assets (kicking people out of their homes)? If they don't then...what? The Chancellor will want to get rid of NR before that happens... one way or another.

As a shareholder I think the shareholders should re-finance NR themselves. We need a General Montgomery to lead the way!

Charles Adams

Comments suggesting Robert Preston caused the main problems for the Rock through his early reporting have to be seen as naive ... Rock's dependence on the stability of the prime lending market would have been noted by other financial experts worldwide and thus the inevitability of exposure and concerns leading to investors shying away ....... ergo, the main cause is Rock's management that got it in this mess in the first place ..... the second concern should now be, to stop Rock's further share value deliberate depression so that potential buyers (vultures) can reap easy and hefty benefits after Rock is eventually salvaged (in whatever "form") and its share values rise significantly again!

O
Keep up the good work Robert and please give Mr King our regards when you next speak to him.
O
David at P6 - the roundabout has stopped.
O
Margaret at P10, it is the housing market that is currently beginning to collapse big time not the stock market (even an estate agent confirms this on the last blog) - although this may follow (I doubt it though because the ‘property money’ will move into the ‘stock market‘ instead).
To the employees of NR (or any other bank) - this is what you risk when you choose to work for a company run by idiotic people whose only real concern is their fat cat pension, bonuses and severance pay.
O
Phil at 76 - a change of government would certainly help matters.
O
Teddy would like to personally thank Dr Hill for his excellent post. (which we have repeated below in case you missed it) Why Don’t the 91Èȱ¬ and media grill the government on this as well ?

20.
At 01:35 PM on 20 Nov 2007,
david hill wrote:
The Northern Rock debacle is a further indicator that the government and their advisers do not know what they are doing. Over the past decade alone government’s mismanagement and ineptitude through their advisers has cost the people dearly. Some of these are well documented but just only a few are,
1.Northern Rock – Loss of £24 billion, but almost likely to be nearer £40 billion (Observer)

2.Foot and Mouth Disease – Cost to the nation, at least £20 billion (Economist)

3.Defence – MOD overspends over a decade – Lost £6 billion (NAO)

4.Underestimated NHS IT System - loss from £6.3 billion to most probably £40 billion but still will not work when completed (senior civil service quote)

5.National asylum IT System – Scrapped at a cost of £77 million (NAO)

6.Identity Cards – Initially estimated at £1 billion, now to cost up to £30 billion (Times)

7.Child Support Agency IT System – Loss for £1.72 billion remains as debt or uncollectable (WPC)

8.The Tax Credit System IT System – £100 million lost (HMRC)

9.Passport Office IT System – lost of £12 million (NAO)

10.Defence IT System DII – initially £4 billion, now £5 billion (parliamentary questions to the secretary-of-state)

11.Future Joint Combat Aircraft programme – Demonstration and Development Phase initial estimate US$ 33 billion, current projected cost US$41 billion (Parliamentary questions, secretary-of-state for Defence, 2004).

12.Swipe card system for benefit payments - £1 billion (NAO)

13.Defence IT System – Scrapped at a cost of £41 million (91Èȱ¬)

14.Pensions IT System - £40 million compensation paid out (NAO & the 91Èȱ¬)

15.GCHQ IT relocation – estimated 1.07 billion, cost £1.63 billion (NAO)

16. Railtrack – Lost £3.3 Billion (parliamentary questions)

17.War in Iraq - from £3 billion to £7 billion and still counting (NAO)
A total of over £140 billion in a single decade of completely wasted money by government and their astute advisers. The truth most probably though, if all waste and loss were added up, over £500 billion if not more.
The greatest significance of these vast losses though to the public purse in a mere 10-years is the fact that government and particularly their advisers are incompetent and not until a ‘fully independent advisory body’ is introduced to vet vast government investments, will this immense waste of taxpayer’s funds continue.
Dr. David Hill
World Innovation Foundation
Bern, Switzerland

To all those complaining about Mr Peston and his reporting of the situation I only have this to say, if anything rather than scaremongering he and the 91Èȱ¬ have only given proper and necessary coverage to what was already a real and growing problem.

I used to work doing the legal donkey work for these re-mortgages and other sub-prime lending that are now coming back to bite in the US, causing this credit crunch. Although over in the UK we don't have as much exposure to sub-prime lending (if we are to believe the Rock's figures only a relatively small part of its books are sub-prime), I saw first hand the problems people were getting into and the problems we've been seeing since were inevitable.

I used to look through over 100 mortgages a month, noting with disgust how the penalty clauses for early repayment were potentially adding up to £10,000 onto an average loan. I saw the 2%-4% hikes in the interest rate once the introductory period had expired, and I saw the cut that brokers took from the whole deal. Being paid £600 to do most of the work whilst the brokers took £3,000 from the same deal for doing very little gave every indication they were just there to take even more money from the people taking out the loan and certainly weren't acting in the best interest of their clients.

Having dealt with people from Northern Rock in business I can say for certain that the people on the ground are a good bunch and I really hope the decisions of those higher up the chain don't end up screwing you all over. I do have to add however that some of the problems that arose when I did have dealings with the Rock (I believe these were system errors rather than human error for the most part, as a lot of the documents I dealt with were computer generated) did not give me a feeling of confidence and I always had to check the figures we were provided with when doing deals. The very worrying thing was that NR were certainly not the worst in this regard, there were a lot of companies that filled me with far less confidence and truly appeared to be milking the customer for every last penny they could get out of them.

So I wasn't surprised when this whole saga broke and I'm just sad it happened to a decent company rather than CitiFinancial or GE Money, both of whom I would genuinely class as incompetent. I was asked by someone selling double glazing recently if I would consider taking a loan to pay for the work through GE Money and I laughed so much I think I unnerved him. Having spent 2 1/2 years staring into the abyss I wasn't going to go and jump in there myself.

So please keep up the good work Mr Peston, the current banking system we have is flawed and the more we dig, the more gets uncovered and hopefully we then have the chance to fix the system to stop this particular problem from happening again. It was gratifying to hear someone who had the platform to reach out to a large audience to say what I've been saying to my own very limited circle for years!

Now the contagion rears its ugly head. Look at this blog, everybody is against one another. Everybody wants money back. If this continues . .

Interest rates need to fall as real interest rates are too high compared to trading partners, in fact every other countries.

Under current environment, can a fall in rates be inflationary?

Inflation is more affected by outlook than interest rates.

Dear Segundum,
Fractional Reserve Banking's the theory, my point about injecting liquidity and stoking inflation's the practice. It still doesn't make it either right or responsible.
There's an even worse side about this: the entire problem's actually got a flip-side completely opposite to the people who say, "the government can't be trusted with our biometric details in the guise of an ID card", they've just compromised so much basic personal data about the next generation that biometrics are about the only details left which remain confidential.
And that's what's worrying, was this deliberately managed?

Does anyone have the same problem with cryptic crosswords as I do? Have you ever been left with a couple of clues to answer that, however hard you think, however much concentration you give them, however you try, mentally, to empty your mind and start all over again - the answers won't come. Then, eventually, you put the crossword down and go to bed. You wake up in the morning, pick up the paper, and within 2 minutes you've solved the remaining clues.

This has happened to me on dozens of occasions. It's as though my mind gets locked into a particular thought-structure, maybe because it has been quite successful at answering the first 95% of the clues. Within this period of consciousness, I'm quite unable to drop out of this thought-structure - the only chance I have of doing this is to sleep, and afterwards to go back to the problem completely open-mindedly. If I even start to think of the problem in the same way as the day before I'm locked back into the same thought-structure that proved fruitless before.

Anyway, the point of all this is to put into the melting-pot the idea that perhaps the financial consensus is suffering from such an idée fixe and that it is this that is blocking the path to what would be otherwise be looked at, in hindsight, as a relatively straightforward solution.

My recommendation is that we should seek to banish from our minds the preconception that the equilibrium position of the currently-structured financial sector is one that is overwhelmingly a force for good. This is not to say that we should take the contrary view - that it is a force for harm - but that we should attempt to address it neutrally, without any preconception.

The glass is neither half-full nor half-empty - it's just a glass with some water in it.

Post 66 nails the problem on its head!

There is one reason and one reason only why NR is in this mess . They borrowed short to lend long.

I would suggest everyone re-reads post 66. NR lent to this gentleman up to 2011 at a fixed rate of 5.19%. This is fine if NR could borrow the money at much less than that. Once you cannot do so you lose money it is as simple as that!

As he correctly points out NR are going to lose a lot of money on his mortgage and I am sure he is far from alone.

Is there any way of filtering comments so that those with an informed opinion some how get displayed prominently. Ignorant comments like "let it sink" and referring to labour's heartland add nothing to what should be an informed debate. NR is in a bad way because of a handful of managers not the 6500 staff who made it the most efficient lender in the UK. It didn't go all out with risky lending (despite 95% loans being topped up with 30% unsecured) this was only a proportion of the business and arrears on the risky loans are actually less than the average of other lenders. Labour's heartland is a bit of a broad statement - Newcastle City Council currently is run by the Lib Dems with a big majority. What really needs to be looked in to is the role of the press and their links to the shorters who sell shares they don't own and then buy them at a lower price. Its interesting to see the relationship between tip offs to the press and the share activity. Can there also be a bit of "honesty" used when reporting. The classic tricks of using inverted commas when reporting "half truths" and "rumour" and presenting them as "fact" is a bit old hat "Bob"

Is it not time that NR share dealing is suspended?

The stock exchange has warned the market about the volume of short selling (selling something you don't actually own!!)and the failure of some to settle their trades on time.

Many in the City have made a fortune in short selling NR stock, which has helped turn the situation into a crisis.

Who is shorting the stock in Barclays, RBS, A&L etc etc?

If I want to sell some shares, my broker will seek evidence that I own what I am selling, before they will execute the trade.

The City insiders can sell vast blocks of shares in a company, wait for the sale to drive down the price, and then buy the shares at a lower price, and pocket the difference.

If I buy shares in a company over the disclosure limit, I must by SE rules declare my identity, but if I sell shares I do not actually own, I can keep my identity secret.

As there is a false market in NR stock, is it not time for the SE to suspend?

"And just to be clear, the Rock has confirmed to me that it needs this additional capital."

Sorry Robert, I cannot believe anyone at NR would even speak to you, let alone confirm anything to you. Your perfomance on the news the other night makes me think you actually believe you are the story now.

Very, very sad.

Post 81. Do you have a brain, or any comment/opinion of your own to make? If so why not let us know what they are instead of just listing information you have obtained from other sources. Thank you

I agree completely with Jim #82..

I'm fortunate in that I was able to pay off my mortgage early but given I bought this house well before the house price boom it was tiny compared with the size of mortgage people are taking on now.

However, I distrust our entire financial services sector for very different reasons. In their recent report on Global Competitiveness the World Economic Forum placed the USA at the top again and the UK came in somewhere around tenth.

Explaining why the USA was once again top their WEF chief economist said "The US gets its leadership position through a winning combination of highly sophisticated and innovative companies that lead the world in research and development and operate in very efficient and large markets. This is buttressed by an excellent university system that works closely with business, a very flexible labour market, a unique ability to attract talent and a financial sector that supplies the needed capital for risky innovation ventures. These strengths allow the US to overcome weaknesses related to its macroeconomic imbalances"

Note particularly the comment about the financial services sector providing the capital to support risk innovation centres.

This says it all really. The US financial services sector despite it's current problems and despite it's love affair with hedge funds and private equity is still a force for good in the USA because it remains connected to and recognises the importance of innovation to future of the US economy.

If you like, the US financial services have adopted the Kennedy approach of not just thinking what the USA can do for it but what it can do for the USA.

For that reason you can understand why the USA is so proud and supportive of Wall Street.. Despite its faults it makes things happen.

Here I see no similar reasons for us to be proud of the City. Indeed, there is every reason to be extremely concerned that rather than being a force for good the UK financial services sector is responsible for our long term economic decline.

The boss of the CBI said a few months ago "In today's rapidly changing economic world order, we must create more global enterprises if we want the UK to remain in the top tier of world economies. Yet in the past 20 years the number we have built from scratch has been low."

That's something the US financial services sector and most others understand well but the UK financial services sector doesn't. That has to change.

Adam Applegarth (disgraced former CEO of NR) has been (and apparently still is) a non-Exec Director of Persimmon (UK’s leading home builder). Surely it is a conflict of interest where sellers and lenders are so closely associated.

I’ve always thought that since 2000 or so there has been some degree of market manipulation between new build sellers and lenders to maximise indebtedness of their customers to the benefit of the remuneration packages of their respective directors.

Keep it going Robert.

What we have here is inadequate legislation and/or regulation to prevent shareholders suffering the vagaries of company management. At least let a scheme be devised where management can be assessed as to their competence post a disaster such as N Rock. Then let them be pilloried (without £m of compensation) or exonerated as appropriate.

As far as HMG is concerned, let's get rid of the failed Sociologists and failed Lawyers who purport to run things. I would rather have practical trade unionists back in government!

Glad to see people are finally waking up to the fact that NR had its on SIV and used cutting edge financial techniques and alternative investments as part of its strategy. I disregard the comments from most staff members, because lets be honest the average girl in a branch knows as much about the financial operations of the bank as a doctors receptionist knows about medical diagnosis. NR was insolvent and its business operations were seriously flawed, like a lame gazelle it was identified by the financial predators. B&B is next in line without a doubt, they have already added liquidity by selling off the assets that make them attractive to potential white knights. The question is if NR gets support from the BOE why shouldn't B&B. The government is providing support and while that may not be tax payers money directly funding, it is creating a contingent liability on the balance sheet of the UK. There is no doubt that without continued support from the BOE NR would collapse, no deposit dealer in the world would lend them the kind of money they require and the securities that they would normally issue would have no buyers whatsoever. HBOS recently announced it would not issue RMBS in the current environment as it was not cost effective, you English should return to discussing the weather and if Beckham should be in the team or not and leave serious issues like banking to the Scots.

Rahul,
I think you may have got the wrong end of the stick with regard to the attack on Mr preston and his merry band of 'investigative reporters'. Certainly the NR model was the reason NR had to use the BoE as lender of last resort - however the press were responsible for breaking that information to the public - which was then not accurately explained by the over-excitable 24 hour media we have here, and that led to savers rushing to the bank because they feared that 'Northern Rock has run out of money' - which incidently was never the case. NR could continue to operate without the BoE loan but would have been unable to expand it's business. The run on the bank exasperated this as the reduction in savings meant that the amount of 'ready cash' NR had was further diminished. I don't blame the press for the operating model failing under the credit crunch - however they must accept that the run by savers was solely due to mis-interpretation by the public fueled by innaccurate reporting - something which is becoming more and more common these days.

Isnt Derek Wanless a NON Executive Director at NR? and wasnt he chairman of Natwest Bank before the hostile takeover from RBS? Also wasnt he heading up National Health Service change plan?

bet he gets rewarded handsomely though

Those who want £900 back right now, perhaps should be given a £900 loan at 7.25%, ie the same treatment.

Again, this loan can be created, or perhaps financed by creating long gilts at 5%% to be sold to pension funds.

Treasury get a profit of 2.25%. Pension funds get a yield of 5% which solves their funding issues.

But can somebody tell us anything wrong with this suggestion?

I re-post this, pls let it show for the sake of balanced view.

Funny: many willing to finance outsiders to bid, do they have super business plan? None willing to lend to NR directly.

Must tackle the root. Root is lack of deposit base. To restore base, need to ensure long term security and to restore confidence. This can ONLY be achieved by Feb by Govt taking a MEDIUM TERM STRATEGIC STAKE (partial nationalisation, as part of open market operation, in tune with times/crisis of the day) unless you argue that NR is in a sunset industry.

It can sell bills at 4% to participate on the very big recovery, seizing a temporary distressed opportunity, avoiding the social and health costs of 6000 or more distressed families queuing for state benefits.

If it is not a loan, it wont fall foul of one-size-fit-all EU STATE AID rules, right?

Can EU help feed house 6000 families? How knowledgeable, credible are rules-makers?

Rahul,
I think you may have got the wrong end of the stick with regard to the attack on Mr preston and his merry band of 'investigative reporters'. Certainly the NR model was the reason NR had to use the BoE as lender of last resort - however the press were responsible for breaking that information to the public - which was then not accurately explained by the over-excitable 24 hour media we have here, and that led to savers rushing to the bank because they feared that 'Northern Rock has run out of money' - which incidently was never the case. NR could continue to operate without the BoE loan but would have been unable to expand it's business. The run on the bank exasperated this as the reduction in savings meant that the amount of 'ready cash' NR had was further diminished. I don't blame the press for the operating model failing under the credit crunch - however they must accept that the run by savers was solely due to mis-interpretation by the public fueled by innaccurate reporting - something which is becoming more and more common these days.

Robert Preston should leave Northern Rock alone.. He has done nothing but critisise the bank.. He needs to think about the thousands of staff that could loose their jobs.Do you want the bank to collapse???

According to Private Eye Alistair Darling's mortgage is with Northern Rock.

If so should he not have disclosed a potential conflict of interest?

Just to comment on the very interesting question posed by John (#54) on whether a run-off is a better alternative than Administration.

My own view, based on experience in managing banking work-outs, is that a run-off will not work because no-one has the power to impose the kind of major changes (policy, strategy, staffing, review of procedures etc) needed to manage a run-off efficiently. Creditors (i.e. the government) can encourage management to pursue a run-off policy, but if they are not happy with the results their only sanction is to call in their loans and force the company into Administration. It will be cheaper and more satisfactory all round to do this first rather than vacillate for months with shareholders clinging on to the hope of salvation.

The comments today by the Nationwide CEO that he would not touch any NR mortgage books suggest that the quality of the loan book is not good – the rest of the industry clearly has its own views on NR’s lending quality.

Management of the loan books post-Administration does not have to be slash and burn, and there is nothing to prevent the administrator appointing management to run-off the book over an extended period to maximise recoveries. (There are precedents for this, with banks entering into Voluntary Arrangements with creditors under the supervision of the administrator to allow an orderly run-off).

Administration does not have to be a fire sale, but there is mounting suspicion that it will take Administration to find out just what state the balance sheet is in. There seem to be mounting reasons to suspect that the ‘solvent bank’ view is way over-optimistic.

So Mr Applegarth will 'only' receive a severance settlement of 6 months salary.

Sadly, when the dust finally settles, I suspect many of NR's 6000 employees will also have lost their jobs.

I wonder what severance settlement they will receive?

Duncan
I'm not sure I agree with your blaming the media for the run. NR did not in fact have any cash in the bank. They had lent it to other people and as a consequence they would not have been able to pay back depositors or other debtors if they wanted their money. Had the BoE not become lender of last resort, the only way that NR would have been able to honour its debt would have been by effectively selling its mortgate book at a fraction of its value (that's the point of the sub-prime crisis - no-one knows how to price risk) and the result would have been a run on the bank. Oh, and the chancellor would not have been forced into the position of guaranteeing all deposits and a number of depositors would be looking at big losses. Blame greedy bankers, not reporters.

There are lots of posts, and have been for a long time, that blame the reporter here for "bringing down the bank" or "Whipping up hysteria for possibly obscure motives" or even "creating a false market in the shares" ----- by just the mere fact of his reporting the situation.

I am not blind to the serious side of the criticisms (Though I have to say I feel they are wrong headed)

BUT

If this bloke CAN smash to smithereens Footsie 100 companies simply by what he writes...I would be very grateful if he kept this information under wraps, and does NOT write about it anymore--- until AFTER he floats on AIM (and we take him to Nasdaq as well)---- because I could then buy shares in "PestCorp" ahead of the crowd.

This tightly focused media corporation would obviously specialise in one service area only: High level contacts where the company (Pestcorp) threatens to write facts about a National or even Global corporation and cause their total collapse!!---the Revenue model will be similar to blackmail,being that on payment of a fee being not less than 5% of Market Cap., Pestcorp will NOT write about that company.

I can't see any flaw in this Business ---- and one thing is certain no-one outside that corporation and "PestCorp " Executives would actually ever read anything about these things.

To be honest I don't know why he keeps messing around doing that old fashioned "reporting stuff" for the 91Èȱ¬ ...when a couple of sentences judiciously applied could be so much more rewarding!

It's frustrating...we have the Business Plan, The Finance and the Contacts...all we need is Robert Peston because he's the only person these "Blackstone", "Goldman sachs" and "KKR" types listen to ---and as yet he won't come on board... doesn't return the calls...Probably wants more equity...?!!!

Good evening playmates.

OK - Attempts at humour.
OK - Irony.
Just About OK - Sarcasm

Definitely Not OK -

The small minority of people who, when they cannot win an argument on this blog, think that it is acceptable to resort to rudeness and abuse (behind cyberspace anonymity)
If this gets past the moderator, it can either be ignored and treated with the contempt it deserves, or challenged in an attempt to get them to modify their behaviour, and to set the record straight . I assume that these are the same sort of people who would probably resort to violence on the streets.
O
Generally Disappointing and of Much More Concern -
The significantly greater number of people on this blog (and unfortunately in the wider world) who appear to be having some difficulty in seeing the wood from the trees - perhaps they should consider getting their heads out of the sand, further away from media propaganda (‘establishment’ and tabloid) and try and step back a bit or ‘hover‘ over the problems. However, it is encouraging that there are still some enlightened individuals out there occasionally making an effort.

In hindsight, in our last post we should not have pasted Dr Hill comments from Switzerland into the post (and for that we apologize), but simply stated that we totally agreed with him - ie that top-down gross incompetence and lack of accountability (from the government into the banking sector and just about everywhere else) is the big issue which everybody should really be addressing - in our opinion.
What sort of an example is the government setting ? Maybe we should prevent people becoming MPS
unless they have a proven ‘unselfish’ track record in honourable public service or business. It seems that any dim wit can end up running most countries. What chance have we all got if the big guys are always messing up big time ?
O
I better go now - Teddy wants to have an early night.

Yesterday's decision on HIPS shows our government don't understand the financial structure of the UK economy. Detached by 10 years in power, surrounded by yes men posing as management and economic advisers, economic data so manipulated for the sake of spin that they don't reflect reality. These have given rise to a government which has the characteristics normally associated with a bizarre religious cult or despotic state.

Here's an interesting little snippet buried in bloombergs web site:

(Quote)"Nov. 21 (Bloomberg) -- European banks agreed to suspend trading in the $2.8 trillion market for mortgage debt known as covered bonds to halt a slump that has closed the region's main source of financing for home lenders"

Oh Dear. Northern Rock's woes are but a drop in the proverbial ocean. In a years time NR will be forgotten - when the likes of Barclays, HSBC and Lloyds TSB are closing their doors. This could get extremely ugly.

Post 107 - Geoffrey and Teddy

" ... top-down gross incompetence and lack of accountibility (from the government into the banking sector and just about everywhere else) is the big issue which everybody should be addressing

To you and me any anyone else who is primarily concerned with external outcomes this is, with complete clarity, the major problem to which the world should be addressing itself.

But ... Maybe we externalists should take a step back ourselves, and consider why it is that most of the rest of the world doesn't agree with us. And I think we would benefit from reaching the conclusion that the reason is not that the rest of the world is stupid, misguided or that it is missing a trick; no, the reason is that most minds do not prioritise outcomes - they do not see the world as a series of external situations requiring the focus of human intellect. Their view of life is essentially internal - what is it that makes THEM feel better about things. And this doesn't include getting all hot and bothered about something that doesn't immediately and directly affect them.

So, I believe that a wise externalist will see that the best way forward lies not in trying to persuade the majority to think like we do. Rather, we should be trying to sow the idea that there's a warehouse full of happiness out there for the taking and that all we have to do to get our hands on it is to focus more on improving realities rather than perceptions.