Sunday, Sep 23, 2007
Demise of Northern Rock means BIG Profits for Hedge Funds
BBC: Hedge funds cash in on Rock's demise
Interesting article that shows how big profits have been made from the Northern Rocks fall from grace as certain hedge funds shorted the banks shares. "This may be a new story for many people, but it's not new for some sophisticated investors," observed Julian Pittam, the overall profit from shorting Northern Rock could be as much £1bn.
Posted by enuii @ 05:38 PM (787 views) Add Comment
12 Comments
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1. paul said...
"A better-run bank would have had the ability to fund itself in a crisis"
Hmm. So why can't the chancellor or the BofE see this?
2. tyrellcorporation said...
They're cacking their pants about contagion, after all if NR had gone teets-up, A&L and B&B would have been next - then who knows what might have happened. Of course this scenario could still happen as bailing out NR savers would cost about £20bn and where are the government gonna find that? - let alone bailing out any more banks.
Squeeling about hedge fund managers is a bit rich as they aren't doing anything illegal, it's all rubber stamped by the FSA and the treasury get to squeeze out some lovely tax revenue. The BBC hate anything about people in the city making money... Puhh! dirty capitalist scum, it's far more honourable to take cash from frail pensioners through a TV set tax enforced by the thugs at TV licensing!
3. su said...
The business of shorting shares is about as clear as mud to me. Is it referring to the lowering of the price of the shares? And how are the prices of shares determined - and who determines them?
4. Bubblepopper said...
Su, you're funny!
5. alan said...
Selling short is to sell shares before the price drops in the hope of buying them back from the market after the price drops.
Don't forget shares are bought/sold in periods called accounts. Each one lasts 2 or 3 weeks, so, for example I can sell 200 shares on Tuesday, buy 120 Wednesday and buy another 80 on Thursday and settle up the following week.
One of the guys I know says his hedge fun made millions.
6. su said...
Thanks, Alan. That was helpful.
7. planning4acrash said...
SU, I often see words and phrases I don't understand here, google and wikopedia em and all becomes clear! In particular, things like IMO, MEW, and other silly achronyms that I've had to look up on a regular basis!
8. deepak said...
Has Northern Rock gone bust?? I don't think so.
You might have a very angry shareholders who have paid excessive salaries to managers based on valuation. Now when the valuations have gone low they can't have the bonuses back.
If some business can pay all its liabilities ( in this case deposits) and has money left afterwards that is not a bust business.
9. inbreda said...
Yeah sure deepak - if it was able to cover its liabilities why does it need an emergency loan at penal rates from the BoE????
Bust? Maybe not, but certainly the next best thing.
10. d'oh said...
Profit from shorting shares? No net profit has been made - someone lost a £1 billion pounds and someone gained £1 billion pounds, and some leeches took 5% in the middle of that transaction.
11. su said...
Ooh, You're wonderful, P4AC. Thanks! I've been relying on the glossary at the bottom of this page, but it has its limitations!
12. su said...
P4AC. Short shares has obviously been recently updated in Wikopedia. I assume the bank it refers to is NR. Shares down from £12 to £2. Your poor dad! Hope he got his shares out in time!