Monday, Jan 21, 2008
Government seeks share in any Rock upside
FT: Northern Rock in Crisis
Upside? Will be interesting to see what the yields will be on this.
Posted by techieman @ 08:57 AM (456 views) Add Comment
11 Comments
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1. techieman said...
This is what i posted Saturday:
A while back i posted that the givernment[sic] will just issue bonds. The question is whose are the bonds? If NR was to issue bonds it would have to pay more than its "penal" interest rate it pays to the BoE so it would be a waste of time. Therefore the bonds have to be guarantted or issued by HMG. So the question then is how does that interest on those bonds get repaid to the governemnt by NR (or do they have a payment holiday?) and what happens should they default? Of course the maket will suss this so either the government guaranttes them or they become gov issued convertibles - into shares for example or other types of debt. The second alternative seems to be preffered BUT i like the way they will get these converted WHEN conditions improve? Oh year and the government will repay war loan and consuls - er one day!! Should be interesting opn monday and to see what happens to the share price.
This was my original post:
2. Refusetobuy said...
So this is just like the government issuing debt.
The government guarantee makes the value of the NR mortgage book (and its cashflows) irrelevant.
By seeking only a share in upside, the taxpayer is loosing value.
Downside case, taxpayer has to pay to cover the bonds. Luckily this downside case won't happen - unless there is a HPC
3. hpwatcher said...
Bonds? Bonds? Will anybody really waste their money on that sh*t??
Anybody with any money is in the process of moving it out of the UK.
Moreover, does anybody really trust the government?
4. hpwatcher said...
''Moreover, does anybody really trust the government?''
I think not!
5. jack c said...
@techieman - would it be fair to say that the Gov't is effectively nationalising the NR debt whilst privatising the profits?
6. techieman said...
Nationalising through the back door. Yep Jack that sounds about right - the rest is gonna be smokescreens and soundbites. The only issue now is what happens when the next one goes? We have written a huge blank cheque. The givernment will be paying interest on the bonds, whilst getting back some of the Capital - long term it will cost us dear but wait and see how this is "sold" to us by Darling. My real interest is what happens when another goes....
7. Refusetobuy said...
@Jack C
Yes. That's a very succinct way of putting it.
8. jack c said...
@techieman - this proposal could IMO cause another bank run - for example £25BN worth of NR Bonds covering the BOE loan are available for purchase by financial institutions - because they are government backed they are more attractive to hold than those of any other bank looking to raise funds in this manner - consequently other banks could find there is no market for them as everyone piles into NR.
Your thoughts would again be welcome
9. techieman said...
jack no i dont agree with you. I think there WILL be another run but not for the reason you say. The NR issue will be attractive to institutions because they are effectively sovereign backed debt, as such they may have a minor impact on the yeild of other gilts because the NR issue will be more attractive than Gilts for the same maturities (whatever they are - we will no doubt find out this afternoon). The other reason is the Government really cant let them fail. There may be an increase in the cost for other debt, but this is a secondary market so they have already been sold and then traded after the initial offerings. Now any new funds being raised? Thats an intersting point but i think thats something to mull over, I cant see one of the big boys failing at this juncture - that would really be goodnight vienna! So anyone else who is in trouble will first go through the same path i.e. via the BoE. Well thats my view but we will just have to wait and see. I would like to see some analysis done of the balance sheets and the quality of the assets on the loan book. For example i think a tell tale indicator will be the LTVs of the mortgage providers on residential through bands of values (of advances). I wonder if the FSA will be manipulated in this (NR ) case.
10. techieman said...
There we go: http://news.bbc.co.uk/1/hi/business/7199574.stm - although it doesnt say much more, i suppose someone else will post this, as a separate topic.
11. jack c said...
@techieman - thanks for the input - interesting that you think there WILL be another run (I presume u mean on another bank and not a re-run on the Rock) - analysis on A&L/B&B suggests they are most vulnerable after NR. Lets see what Mr Darling has to say at 1530 today and we may be able to move the debate forward once more.