How Safe Is Northern Rock?

[Flat Bear]

Could Northern Rock last out a protracted credit squeeze?

[munimula]

Could Northern Rock last out a protracted credit squeeze?

Probably not, especially as they are about to annouce another profit warning....at this stage in the cycle it's looking bad.

They took a £250M hit recently for getting interest rate expectations wrong.

They have been one of the best growing mortgage lenders due to large multiple loans, they now must be one of the highest at risk of going under.

Get your savings out of Northern Rock now if you have any with them

[dstars]

Northern Rock is as safe as houses. You can take that to the bank and bet the house on it.

[crashmonitor]

Can't we postpone talking about the Northern Rock until my bond maturity has safely negotiated a CHAPs transfer a fortnight hence into my bank account.Mustn't start a panic .

[sunonmars]

Northern Rock is as safe as houses. You can take that to the bank and bet the house on it.

Not very safe then

[lets get it right]

Despite many, many threads on here about the banking system, lending etc - I still have no real idea how something like Northern Rock works.

Time was when Building Societies used depositor's money to lend to mortgagees and charged the mortgagees a higher rate of interest than they paid the depositors. On the face of it a beautiful business model.

What has changed?

If Northern Rock said today 'we are not lending anyone any money for a while' surely the money coming in from mortgage payers would be greater than the money going out to depositors'? Wouldn't it? And if the difference pays the overheads of the business then surely they could just stay in business forever?

[harris]

They are fine in terms of stability etc.

What the credit squeeze does to them is make it harder to raise funds for profitable new lending meaning that their plans to increase their market share become more difficult to achieve which is why their share price, which factored in these increases has fallen.

Its still a very profitable bank though.

[?...!]

I would say their core business is unviable in the current climate.

AKA they are screwed.

[scott666]

What happens when a bank finds big swiss-cheese style holes in their accounts? Do they start calling in loans/mortgages early?

[Come On Down]

Can't we postpone talking about the Northern Rock until my bond maturity has safely negotiated a CHAPs transfer a fortnight hence into my bank account.Mustn't start a panic .

Okay then, we wont talk. Just look: http://newsvote.bbc.co.uk/1/shared/fds/hi/...3/one_month.stm

[dstars]

surely the money coming in from mortgage payers would be greater than the money going out to depositors'?

Surely?

[munimula]

They are fine in terms of stability etc.

What the credit squeeze does to them is make it harder to raise funds for profitable new lending meaning that their plans to increase their market share become more difficult to achieve which is why their share price, which factored in these increases has fallen.

Its still a very profitable bank though.

They WERE a very profitable bank. They are due to announce their 2nd profit warning shortly and took a £250M hit from getting interest rates wrong.

Profitability may be a thing of the past for them very shortly. Then it's a question of how much can they take in the form of losses

[@contradevian]

Okay then, we wont talk. Just look: http://newsvote.bbc.co.uk/1/shared/fds/hi/...3/one_month.stm

Don't Panic!

[scott666]

I was thinking if the graph of the NR share price was a mountain it would be a bit scary skiing down it, however on second thoughts abseiling down would probably be the best option.

[harris]

They WERE a very profitable bank. They are due to announce their 2nd profit warning shortly and took a £250M hit from getting interest rates wrong.

Profitability may be a thing of the past for them very shortly. Then it's a question of how much can they take in the form of losses

I think that you will find that their profit warnings consisted of letting people know that their profit growth for the year would be 15% rather than 17%.

If you have managed to convince yourself that a company that is on track to make record profits, albeit not quite as high as they thought at the start of the year, is making a loss you must be some sort of idiot.

People on here really need to look more closely at the actual facts of a situation. NR's shares have been rerated by the markets as it is unlikely to increase profits under current market conditions at the rate that had been expected. There's nothing to read into the situation other than that.

Edited August 16, 2007 by harris

[Come On Down]

I think that you will find that their profit warnings consisted of letting people know that their profit growth for the year would be 15% rather than 17%.

If you have managed to convince yourself that a company that is on track to make record profits, albeit not quite as high as they thought at the start of the year, is making a loss you must be some sort of idiot.

People on here really need to look more closely at the actual facts of a situation. NR's shares have been rerated by the markets as it is unlikely to increase profits under current market conditions at the rate that had been expected. There's nothing to read into the situation other than that.

OKay then. Try this one. http://newsvote.bbc.co.uk/1/shared/fds/hi/...welve_month.stm

Yearly view. Savvy investors got out early.

[harris]

OKay then. Try this one. http://newsvote.bbc.co.uk/1/shared/fds/hi/...welve_month.stm

Yearly view. Savvy investors got out early.

Exactly, the shares have been rerated by the markets due to changing market conditions. That still does not mean that are making a loss or are financial unstable. If that was the case the shareprice would be virtually nothing.

[gravity always wins]

If Northern Rock said today 'we are not lending anyone any money for a while' surely the money coming in from mortgage payers would be greater than the money going out to depositors'? Wouldn't it? And if the difference pays the overheads of the business then surely they could just stay in business forever?

Assuming all the people they lent to keep repaying

Assuming the assets the loans have been used for don't drop like a stone

Then everything is rosey. EX Investors in NR don't believe these assumptions to be correct.

Edited August 16, 2007 by gravity always wins

[dstars]

I think that you will find that their profit warnings consisted of letting people know that their profit growth for the year would be 15% rather than 17%.

If you have managed to convince yourself that a company that is on track to make record profits, albeit not quite as high as they thought at the start of the year, is making a loss you must be some sort of idiot.

People on here really need to look more closely at the actual facts of a situation. NR's shares have been rerated by the markets as it is unlikely to increase profits under current market conditions at the rate that had been expected. There's nothing to read into the situation other than that.

Wait till next year and the next again. Wait until hundreds of thousands are defaulting. It cannot not happen. Have we forgotten about our personal levels of debt? This is a credit crunch. Northern Rock have been lending zillions to anyone and everyone. This is a credit crunch. Their business is credit and much of it SUB SUB SUB PRIME. They are snookered. I wouldn't give you tupence on the pound for them.

This is why pundits get to imagine that the stock markets lead the real economy by 12-18 months (they do not but I'm not going over all that again) because in 12-18 months all the people who think this is something happening elsewhere are going to be in deep doo-doo. And wags will notice that the stock market crashed 12-18 months before. What an indicator! They will cry.

Short the fckers. They're doomed. I don't care how far they've already dropped. It's the housing market in reverse. Property had no roof, it could just keep on going up. Well, shitey lenders can go down to zero.

Just give it a little time. Rome didn't burn in a day.

[dstars]

If that was the case the shareprice would be virtually nothing.

Only in an efficient market and the market is not efficient.

Just hang on.

[adren]

Exactly, the shares have been rerated by the markets due to changing market conditions. That still does not mean that are making a loss or are financial unstable. If that was the case the shareprice would be virtually nothing.

I am sure you are right.

But looking at that BBC chart, one thing's for sure.

If that was the trajectory of an aircraft that I was on, I would be looking for the parachutes.

[Nationalist]

Note that Northern Rocks borrows the money it lends out for 25 years for THREE MONTHS AT A TIME! That means every 3 months they have to borrow all the money they need again! If the 3-month LIBOR rises higher than they can get from the borrowers NR gets ground to dust. (Their borrowers and savers probably get gouged first.)

[Flat Bear]

I think that you will find that their profit warnings consisted of letting people know that their profit growth for the year would be 15% rather than 17%.

If you have managed to convince yourself that a company that is on track to make record profits, albeit not quite as high as they thought at the start of the year, is making a loss you must be some sort of idiot.

People on here really need to look more closely at the actual facts of a situation. NR's shares have been rerated by the markets as it is unlikely to increase profits under current market conditions at the rate that had been expected. There's nothing to read into the situation other than that.

emm

I've just done a quick credit check through my credit report agency.

I would probably open an account for them but their risk rating seems very high compared to most companies I sell to (construction)

Looking at their working capital for 2006 a/cs (current assets less current liabilities) of (-96,922,800 denomination £000) that is a minus figure, it looks worrying as this was also the first year it went into minus, but many financial institutions are geared with minus working capital but not to the extent it seems of NR

Looking at cash (cash already at bank or in hand) 956,000 same denomination gives very limited cover.

Looking at P & L the total pre tax profit was 626,700 same denomination. The bank and loan interest paid over this period was 4,127,200 same denomination again.

So profit was about 14% of Interest paid in effect giving a GPM of 14%

If they paid an extra .2% on interest they would have gone bust! or at least would have needed refinancing.

Around half the profit (316,000) was given in dividends or for tax purposes.

Because of the very high gearing the dividend would seem good for a original capitalisation but margins seem wafer thin.

Concludsion

During periods of very cheap finance highly leveraged companies such as NR will preform well but any slight increase in costs specially over a short period would be disasterous. It is vital they purchase at consistant low rates. If their supplier gave even a relatively small increase in price they would become toast.

Questions are;

How good a supply of money have they got, is it likely to increase and what lead time would they have?

How quickly could they liquidate their assets and at what cost?

On reflection I would not open a credit a/c for this particular company, would you?

[crashmonitor]

Note that Northern Rocks borrows the money it lends out for 25 years for THREE MONTHS AT A TIME! That means every 3 months they have to borrow all the money they need again! If the 3-month LIBOR rises higher than they can get from the borrowers NR gets ground to dust. (Their borrowers and savers probably get gouged first.)

Well they will need another 180k after I have scaled back my investment.Only trouble is the Japs and Germans are no longer prepared to fund UK chavs playing housey in Barratt legoland.

[Bearfacts]

Just caught the lunchtime news where they were debating the crashing stock markets. The Beebs economics ' expert' was interviewing some talkinghead from a city investment bank. The tone of the inetrviewers voice was almost pleading and childlike saying things like ' this won't last for long will it ? and it wont spill over into the real economy will it ? I have a feeling that the real question she wanted to ask was - this wont effect the housing market will it ? Anywayshe raised the issue of Northern Rock - talking head said words to the effect that investors shouldn't panic because Nothern Rock havent made any risky loans unlike the sub prime lenders in America. I almost fell off my chair in amusement as this very morning Mrs B has told me how a surveyor had advised her that if she had any 'dodgy' deals / clients to be made she should use Northern Rock because they dont ask many questions.

I suggest that if you have any money with NR get it out fast.

P.S I have a lot of money with Aliiance Leicester - any opinions on their credit worthiness ? I know they have exposure to BTL ... should I get my money out - yes it is more than the protected 37k. Any opinions on Birmingham Midshires / Scarborough BS ?