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Northern Rock Launches A New Securitisation Issue

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http://www.bbc.co.uk/blogs/thereporters/robertpeston/2011/03/northern_rock.html

I asked someone to pinch me this morning when I saw that Northern Rock had launched its first securitisation issue since its great crisis of 2007.

The bank is raising less than £400m from parcelling up mortgages into bonds and selling them on to investors - which is equivalent to around 2% of its balance sheet. And Northern Rock would argue that it is prudent to diversify its sources of funds - and not be wholly dependent on retail deposits.

But as you will know, it was Northern Rock's excessive dependence on raising money from securitisations, from selling asset-backed bonds, which almost killed it three and a half years ago, when the market for those bonds closed down.

So here is the question: Is it good news that those markets have recovered enough, and Northern Rock's reputation has improved enough, for the bank to be able to raise money in that way again?

Or does it show that banks are still too dependent on what some would see as a failed financial technology?

To be fair to Northern Rock, the size of this bond sale is pretty small. It would be wrong to accuse the Rock of falling off the wagon, in the sense of getting drunk again on allegedly easy money from wholesale markets.

But it is nonetheless striking that this bank which is now tiny doesn't think that it might be more sensible to have no gap at all between what it lends to households and the money it takes in from households.

Arguably if banks got back to their position of 2000, when in aggregate there was no gap between what they lent and what they took in from customers - and therefore they had no net dependence on funds raised from bond markets and wholesale providers - the UK financial system would be more solid.

So given that Northern Rock is nationalised, there is powerful symbolism in the implied decision of the Treasury to allow the Rock to engage in securitisation again.

That symbolism is even more powerful when for banks in general, both here and throughout the EU, there is still a substantial refinancing problem stemming from the previous boom in securitisations. Over the next couple of years, vast amounts of maturing debt, including emergency loans from taxpayers made to fill the gap created when commercial markets closed, will come up for repayment.

So for example the Financial Services Authority, the City watchdog, disclosed last week that more than £110bn of bank debt guaranteed by taxpayers under the Credit Guarantee Scheme is still outstanding and is due for repayment within two years. And something like £100bn has to be repaid to the Bank of England in 2011 as a result of the winding up of the Special Liquidity Scheme.

On top of that, there's at least a further £100bn of bonds that aren't guaranteed by taxpayers which has to be repaid by the end of 2012.

Now on the one hand, it looks like good news if banks can raise money again from asset-backed bond markets to repay these debts, because it means they are under less pressure to curtail what they lend to households and businesses - and it means that there's less of a drag on our economic recovery from constraints on banks' ability to provide credit.

However, there is another argument which says that if the borrowing habits of the years leading up to the crash of 2007-8 were so dangerous, it would be better if banks increased their loans in the longer term only in proportion to the money they take in from reliable customers like you and me.

Update 13:44: Northern Rock tell me the main reason they are selling the bonds now is that raising money in this way looks relatively good value.

They are keen for me to point out (which of course I already did in my last note about their annual results) that as of now - and following the break up by the government of the old Northern Rock into an active deposit-taker and a separate organisation managing the repayment of historic loans - they have lent less in mortgages than they have taken from individuals in the form of deposits.

So, for the avoidance of doubt, the sale of bonds should be seen as a signal of how the bank see their future financial needs.

Over to you Lord (all mouth and no trousers) Turner.

I'm sure Grantley Chapps would like to say it was innovative, but I've a distant recollection that we've been down this path before and it didn't end particularly well.

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I was just looking at Grantley Shapp's mate Eric Pickles on theyworkforyou thinking about this council scheme where they act as guarantors for FTBs.

http://www.theyworkforyou.com/regmem/?p=10477

Monthly column for Estate Agency News. (£1,001-£5,000)

Remunerated directorships

Property Awards Limited (non-executive); standards in housing, construction and related support services.

Sponsorship or financial or material support

Donations have been provided through Conservative Central Office to assist me with the employment of research staff from:

Mr Stephen Brook, businessman, London

Mr Richard Harrington, businessman, London

Mr Stephen Massey, businessman, London

Are they these people?:

Stephen Brook Associates offers cheap house valuations, quantity surveys, house surveys and property surveys in London

http://www.surveyorsfinder.co.uk/city-London/1515083-surveyors-Stephen-Brook-Associates.html

Richard I. Harrington is a British Conservative Party politician, businessman, and former property developer and hotelier.[1] Since the 2010 general election he has been the Member of Parliament (MP) for Watford. He is also a non-executive director of Harvington properties

http://en.wikipedia.org/wiki/Richard_Harrington_(politician)

Stephen Massey is Finance Director for London & Cambridge Properties where he is responsible for all financial matters relating to the Group's property investments in the U.K. and Europe

http://www.globalrealestate.org/retreat/profile.asp?m=bg06&rcd=29115&ofn=127140&

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Are they these people?

Almost certainly, I should think. The whole thing just stinks.

I'm getting increasingly pissed off with the government in general, and to a certain extent the world, which is becoming increasingly detached from reality. I had high hopes for the coalition, daft I know, but I did. Unfortunately, they're increasingly looking like the last lot, only wearing a different colour and being slightly less totalitarian.

When do we get the revolution? We sure as hell need one.

Edited by Fishbone Glover

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Almost certainly, I should think. The whole thing just stinks.

I'm getting increasingly pissed off with the government in general, and to a certain extent the world, which is becoming increasingly detached from reality. I had high hopes for the coalition, daft I know, but I did. Unfortunately, they're increasingly looking like the last lot, only wearing a different colour and being slightly less totalitarian.

When do we get the revolution? We sure as hell need one.

Ditto that.

The strange is that when they talk about these Middle East dictatorships and say they should have a democracy I think "why bother?". We have a democracy but we can only vote for parties that do not have our interests at heart.

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It's like a weirdly surreal Jeopardy! question...

"Dodgy collateral unloaded by its public sector custodians by tucking it into the g-strings of giddily brainless dancers at the local flesh pot - individuals who are themselves either too moronic to notice their sweat being traded for a baseless promise or possibly too high on cheap smack to care"

"QE" (however, "Northern Rock's 2011 asset-backed series" will also do)

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  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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