Special treatment for Northern Rock !

Discussion in 'Current Affairs, News and Analysis' started by jonwilly, Jan 7, 2009.

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  1. Northern Rock's future under scrutiny as government dithers
    Government dithering over Northern Rock has forced the Financial Services Authority to waive its strict capital rules for an extra four months until a decision is made about the nationalised lender's future.

    By Philip Aldrick, Banking Editor
    Last Updated: 6:18AM GMT 07 Jan 2009

    In August the Government agreed to convert £3bn of its remaining £14.5bn loan into equity to strengthen Northern Rock's fragile balance sheet after its core tier one capital ratio fell to an unsustainable 2.9pc. To allow the bank to continue trading, the FSA waived its rules until the recapitalisation was complete or until December 31 – "whichever is earlier", the bank said at the time.

    Despite the deadline passing, the debt has not been converted. The delay raises questions about the Government's long-term plans for the nationalised lender and sets it apart from the rest of Britain's banks, which have submitted to punitive recapitalisations.

    Sources blamed the delay on Government indecision over whether to ditch plans to halve the balance sheet and sell the bank back to the private sector by 2012. A review of the strategy by management is already underway.

    Insiders said the Treasury is aware Northern Rock may now need double the planned £3bn as a result of soaring bad debts, largely due to its risky 125pc mortgages. Although a larger capital increase would simply mean converting more debt, the Government would recover far less of its original loan than planned by next year.

    In addition, as equity, repayment would depend on management successfully delivering the strategy.

    Policymakers are now said to be looking at whether to put Northern Rock into run-off and sell its customer deposits, as with Bradford & Bingley, thereby avoiding the need to inject extra capital and reducing the risk of losses.

    Northern Rock asked for the waiver to be extended on December 23 and the FSA has given it until April 30 to conclude its review and recapitalise – a total of nine months since the first request. A clarification is expected today. The FSA's willingness to overlook the capital shortfall may provoke claims of special treatment.

    But why special treatment when other shave been allowed to 'Go to the Wall' ?
    Story was that the major unions had their 'Cash' invested with Northern Rock.
  2. What banks in the UK have gone to the wall?
  3. NORTHERN Rock.

    Any Arrsers spot a connections in the above?

    I'll wager 'Stalin' would have vetoed any action to help:



  4. I'd be against lending money to made-up banks as well :roll:

    Get back under your rock.
  5. Biped

    Biped LE Book Reviewer

    Cynical, cynical.

    The Unions are/where indeed a VERY big customer of Northern Rock, and it is indeed a favourite bank of the Gobment. Leads one to think that they were indeed aware of the unsustainability of the bank lending frenzies, or if not, encouraged the bank to lend to bad risks, hopng the good times would roll on.
  6. no one has gone to the wall in the UK. Some takeovers and mergers have happened and HMG has taken stakes in other banks to prop up their balance sheets but NR is alone in being allowed to sink as a company. I've followed this story from the beginning and NR have been treated the most harshly of all the financials.
  7. Harshly, I wouldnt describe it as harsh - it was a basket case and should have been allowed to fall. Not subisidised by the taxpayer!
  8. Spot on,mate.

    That to$$er Darling gave the game away by stating Scottish jobs should be protected above all else a while back.
  9. As I forcast months ago.

    From The Times"Philip Webster, Political Editor

    Alistair Darling is considering printing more money in an attempt to ease the credit crunch as interest rates appear certain to fall to an historic low today.

    The Chancellor and Mervyn King, the Governor of the Bank of England, are looking at expanding the money supply by billions and using the extra cash to buy assets ranging from government or commercial debt to private equities.

    The Bank's Monetary Policy Committee began its two-day meeting to decide interest rates yesterday as the grim toll of job losses and closures continued. Viyella, the fashion business, went into administration, putting at risk 450 jobs at stores around the country. Marks & Spencer confirmed that it was cutting 1,200 jobs and closing 27 stores. Another 1,000 jobs are under threat at Cattles, the finance firm, and Barclays cut 400 jobs from its IT departments.

    Today base rates are expected to fall to their lowest level since the Bank of England was founded in 1694. The markets expect a drop of at least 0.5 points to 1.5 per cent or even lower.
    Related Links

    * Brown goes on tour to see nation's suffering

    * Good news for borrowers is hammer-blow for savers

    * M&S to close 27 stores and cut 1000 jobs

    The policy of increasing the money supply to relax monetary conditions is being looked at as a “sensible contingency plan”, a senior government source told The Times last night.

    Officials disclosed that the plan, adopted several years ago in Japan to try to stave off deflation - when prices generally fall rather than rise - was being studied because interest rates close to zero could not be used as a normal tool of economic management. Other ways had to be found of making more credit available, they said, and some of the ideas under consideration had already been adopted in the United States.

    Mr Darling suggested this week that if the policy were adopted it would be done with the Treasury and Bank of England working “hand in hand, because the two responsibilities just become so close you would have to operate together”.

    Officials denied that there was tension with the Bank over the issue, even though its independence to set monetary policy would be reduced once interest rates were so low. They said that, with the risk involved in purchasing debt and assets, the Government clearly had to be closely involved and the Bank accepted that.

    Vince Cable, the Liberal Democrat economic spokesman, said that printing more money could cause inflation. “But if we get into the dire straits of deflation then governments have no choice but to take drastic measures. These are policies for truly knife-edge situations.”

    George Osborne, the Shadow Chancellor, said: “The very fact that the Treasury is speculating about printing money shows that Gordon Brown has led Britain to the brink of bankruptcy.

    “Printing money is the last resort of desperate governments when all other policies have failed. It can't be ruled out as a last resort but risks losing control of inflation and all the economic problems that high inflation brings. And to float the idea carelessly is irresponsible in the extreme as it risks losing the confidence of international markets.”

    Mr Darling also warned that Britain was “far from through” the recession, signalling that he may abandon his forecast that the recovery would start in the second half of this year."

    Must have been to see Zimbabwe Bob.