Northern Rock's New Bond - Is It?

[Guest The_Oldie]

The real beauty is that it's a sort of one sided bond. They are committed to pay 6.9% until 20/1/09, but you can draw the money out at any time without loss of interest or penalty, so if rates go up you just draw out the money and invest elsewhere.

[Bearback]

Will this cause a reverse run on Northern Rock - people will be queing up to put their money in.

Surely this will have a bad effect on other banks as their savers leave for NR.

This will surely raise new questions and create many more problems for all other UK banks.

[IP Newcomer]

This is simply bonkers. I actually get more if I keep my house fund in their bond than I pay out in rent - as a top taxpayer.

It's no longer the case that it costs less to rent than to take out an Interest Only mortgage, it costs less to rent than buying your house in cash.

[Layman]

I guess since A&L pulled their 7.0% bond earlier this week (see thread) this is the best out there. I was too slow and missed it.

[topliner]

Looks like they are testing the NRK brand. Their savings accounts are 100% backed by UK government (at the moment), so it's equivalent to NS&I.

No way would they be allowed to issue a savings account without permission from the treasury etc as they are probably near to the top of the tree with this one. It would signal an unfair advantage over the NRK's rivals.

If savers rush to open these accounts and let's face it, the rate is very attractive, then that gives the green light to Branson and others including NRK management that all is well with the brand!

Or am I on the wrong track?

[The Masked Tulip]

Looks like they are testing the NRK brand. Their savings accounts are 100% backed by UK government (at the moment), so it's equivalent to NS&I.

No way would they be allowed to issue a savings account without permission from the treasury etc as they are probably near to the top of the tree with this one. It would signal an unfair advantage over the NRK's rivals.

If savers rush to open these accounts and let's face it, the rate is very attractive, then that gives the green light to Branson and others including NRK management that all is well with the brand!

Or am I on the wrong track?

I think you are spot on - this rate will have people flooding back to NR in the current climate and that will make it more attractive to buyers of the company as a whole or of the corporate bonds. Problem is, will it force other banks to up their rates and offer a bond on the same terms? That would be a WOW for British banking in the current climate.

I was reading on moneysavingexpert that all money in the NR, regardless of it being over the FSA 35K limit, is guaranteed by the Government? Anyone thinking of putting more than 35K in there?

[The Masked Tulip]

Q. Are there any exemptions to the protection?

Good question, because in fact there are two.

First, if you save with Northern Rock. After the run on the bank in September 2007, the Government stepped in to give a 100% guarantee on all ‘existing savings’ there. On 9 October, this was extended to new deposits too.

In practice, this means anyone saving with Northern Rock, whether from before the crisis, since it, or even if you took your money out and now re-deposit it, will get back your whole balance, plus interest that you’re owed and any money that you subsequently deposit there in the future. The Treasury said the guarantee “will remain in place during the current instability in the financial markets”.

http://www.moneysavingexpert.com/savings/s...ings#exemptions

Is the 100% guarantee a 100% of say 100K or is it really saying "We 100% guarantee the 35K FSA limit"?

[The Masked Tulip]

Appears the Government are guaranteeing you regardless of the amount

http://companyinfo.northernrock.co.uk/corp...onsAnswered.asp

There is no need for customers to withdraw their money. It is completely safe. The government has put in place guarantee arrangements for all savers. The Bank of England and HM Treasury guarantee arrangements protect all savers in all accounts, regardless of the amount deposited and applies to all existing and new accounts. The guarantee will remain in place during the current instability in the financial markets. There is currently no specific end date on these guarantee arrangements.

[The Romford Navy]

Having just spoken with a friend at NR it appears that the fly in the ointment is that money can only be paid into the account while the offer is still open. At some point the offer will be withdrawn and you will no-longer be able to add further funds to the account.

One other issue, albeit minor, is that if you require monthly interest payments they cannot be paid directly into this bond. They must be paid into another account, NR or external. This is obviously done intentionally with a view to the above.

[The Romford Navy]

Interesting, I can find various references to the Government backed guarantee and the fact that it is now extended to new savers but... Nowhere can I find the original statement from the Treasury laying out the actual terms of their guarantee.

[Blue Peter]

Interesting, I can find various references to the Government backed guarantee and the fact that it is now extended to new savers but... Nowhere can I find the original statement from the Treasury laying out the actual terms of their guarantee.

There's a link from the NR savings webpage to:

http://www.hm-treasury.gov.uk/newsroom_and...ress_104_07.cfm

Peter.

[The Romford Navy]

There's a link from the NR savings webpage to:

http://www.hm-treasury.gov.uk/newsroom_and...ress_104_07.cfm

Peter.

Extracted from that website:

As previously announced, the arrangements to protect depositors of Northern Rock plc will remain in place during the current instability in the financial markets.

But no link to the wording of the original guarantee.

[Guest The_Oldie]

This seems to be the latest version of the guarantee, any comments?

http://www.hm-treasury.gov.uk/newsroom_and...ress_149_07.cfm

These are the ones to which the above document refers.

http://www.hm-treasury.gov.uk/newsroom_and...ress_104_07.cfm

http://www.hm-treasury.gov.uk/newsroom_and...press_96_07.cfm

http://www.hm-treasury.gov.uk/newsroom_and...hernrock_07.cfm

[Blue Peter]

This seems to be the latest version of the guarantee, any comments?

http://www.hm-treasury.gov.uk/newsroom_and...ress_149_07.cfm

These are the ones to which the above document refers.

http://www.hm-treasury.gov.uk/newsroom_and...ress_104_07.cfm

http://www.hm-treasury.gov.uk/newsroom_and...press_96_07.cfm

http://www.hm-treasury.gov.uk/newsroom_and...hernrock_07.cfm

The first link does include the 3 months + change of notice clause:

As previously announced, the arrangements to protect retail and wholesale depositors of Northern Rock plc will remain in place during the current instability in the financial markets. Reasonable notice, which will not be less than 3 months, will be given by HM Treasury of any termination of these arrangements.

Given all the effort that the government are going to to try to resurrect this dead horse, I can't really see them doing anything funny, except in the direst emergency, when you would have lost your deposits in other institutions anyway.

Peter.

[Guest The_Oldie]

The first link does include the 3 months + change of notice clause:

Given all the effort that the government are going to to try to resurrect this dead horse, I can't really see them doing anything funny, except in the direst emergency, when you would have lost your deposits in other institutions anyway.

Peter.

Yeah, the guarantee seems pretty watertight, so it looks as safe as NS&I or Treasury bonds and probably safer than any other bank.

[Guest The_Oldie]

A little bird just told me that the 6.9% bond is likely to be withdrawn very soon.

[Guest The_Oldie]

Now withdrawn.

http://www.northernrock.co.uk/savings/fixe...e-access-bonds/

Fixed Rate Access Bond

Due to popular demand the Fixed Rate Access Bond (Issue 1) is no longer available.

A new issue is coming soon and details will be added to this site shortly.

[sound as a £]

So, sent off my application form yesterday and already Northern Rock have been on the phone. Wanted to put over £230k with them as they gaurentee 100% of your money back. So is anyone else nervous about this? What happens is the house of Lords throw out the Governments proposal to nationalise NR? If they make NR sell or windup what happens to people who have money in bonds and savings accounts with them?

[sound as a £]

On NR site they state the following:

The Bank of England and HM Treasury have guaranteed:

* All accounts existing at midnight on Wednesday 19 September, including new deposits made into those existing accounts.

* All new retail deposits made after Wednesday 19 September, including new deposits made into those accounts.

* All future interest payments and movement of funds between accounts.

* All term deposits for the duration of their term.

These new agreed arrangements protect all savers in all accounts, regardless of the amount deposited and apply to all existing and new accounts.

But on the treasury site they say different:

Since it would otherwise be unfair to other banks and building societies, the arrangements would not cover any new accounts set up after 19 September, other than re-opened accounts as set out above.

In the case of wholesale market funding for Northern Rock plc, the Treasury confirmed that the arrangements would cover:

* existing and renewed wholesale deposits; and

* existing and renewed wholesale borrowing which is not collateralised.

So who do you believe? NR say they are covered but the Treasury say that new accounts aren't covered.

[The Masked Tulip]

I think that is something to call to the attention of a few financial journalists - seems HM Government is backtracking. Can't trust the buggers.

[The Masked Tulip]

Do you have the links for that info - think I will email them to the Daily Mail financial's journos. If the Government is backtracking this would be quite a stink.

[Guest The_Oldie]

On NR site they state the following:

The Bank of England and HM Treasury have guaranteed:

* All accounts existing at midnight on Wednesday 19 September, including new deposits made into those existing accounts.

* All new retail deposits made after Wednesday 19 September, including new deposits made into those accounts.

* All future interest payments and movement of funds between accounts.

* All term deposits for the duration of their term.

These new agreed arrangements protect all savers in all accounts, regardless of the amount deposited and apply to all existing and new accounts.

But on the treasury site they say different:

Since it would otherwise be unfair to other banks and building societies, the arrangements would not cover any new accounts set up after 19 September, other than re-opened accounts as set out above.

In the case of wholesale market funding for Northern Rock plc, the Treasury confirmed that the arrangements would cover:

* existing and renewed wholesale deposits; and

* existing and renewed wholesale borrowing which is not collateralised.

So who do you believe? NR say they are covered but the Treasury say that new accounts aren't covered.

You are quoting from the 20th September 07 Treasury press release. they have extended the guarantees since then.

9 October 2007

Northern Rock plc deposits

HM Treasury, on behalf of the Tripartite Authorities, can today confirm that the guarantee arrangements previously announced to protect existing depositors of Northern Rock plc will be extended to all new retail deposits made after 19 September, including those made from today. These arrangements will cover all retail deposits, including future interest payments, movements of funds between accounts and term deposits for the duration of their term.

These arrangements will be complemented by additional facilities through the Bank of England.

The arrangements and revised facilities have been put in place at the request of Northern Rock plc. They will allow the Company to continue to pursue the full range of its strategic options.

Northern Rock plc will pay an appropriate fee for the extension of the arrangements, which is designed to ensure it does not receive a commercial advantage. As previously announced, the arrangements to protect depositors of Northern Rock plc will remain in place during the current instability in the financial markets.

18 December 2007

Northern Rock plc: Extension of wholesale guarantee arrangements

HM Treasury today confirms that the guarantee arrangements for Northern Rock plc described in HM Treasury's announcements dated 20 and 21 September 2007 and 9 October 2007 are being extended, at the request of Northern Rock plc, to the following unsubordinated wholesale obligations, whether now existing or arising in the future:

* all uncollateralised and unsubordinated wholesale deposits and other borrowings which are outside the guarantee arrangements previously announced by HM Treasury;

* all payment obligations of Northern Rock plc under any uncollateralised derivative transactions;

* in respect of all collateralised derivatives, and all wholesale borrowings which are collateralised (including, without limitation, covered bonds of Northern Rock plc), the payment obligations of Northern Rock plc to the extent that those obligations exceed the available proceeds of the realised collateral for the relevant derivative or borrowing; and

* all obligations of Northern Rock plc to make payments on the repurchase of mortgages under the documentation for the "Granite" securitisation programme.

The previous announcements have created guarantee arrangements for all unsecured retail products of Northern Rock plc and many of its wholesale deposits and borrowings. This announcement extends these arrangements to a wider range of wholesale products. The extension is in line with the previously announced objectives of the Tripartite Authorities of financial stability and the protection of the taxpayer and consumer and for the purposes of Northern Rock plc's credit ratings in respect of the wholesale obligations described above.

No change is being made to the guarantee arrangements in respect of retail deposits of Northern Rock plc, which remain fully protected under the announcements previously made by HM Treasury. Northern Rock plc will pay an appropriate fee for the extension of the guarantee arrangements. As previously announced, the arrangements to protect retail and wholesale depositors of Northern Rock plc will remain in place during the current instability in the financial markets. Reasonable notice, which will not be less than 3 months, will be given by HM Treasury of any termination of these arrangements.

Links to the relevant Treasury press releases are listed in my post #38 on this thread.