Saturday, July 5, 2008

Northern Rock in slow motion

B&B sinks ever lower as investors play the blame game

"We wrote about this company several months ago, that it could be Northern Rock in slow motion," said Leigh Goodwin at Fox-Pitt Kelton. "It looks like things may be moving a bit faster than that now. "The company doesn't have a viable business model right now. Bad debts on the mortgage side are going up and funding costs are also going to go up now."

Posted by paul @ 10:48 AM (1038 views)
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4 thoughts on “Northern Rock in slow motion

  • japanese uncle says:

    Give me my freedom for as long as I be.
    All I ask of living is to have no chains on me.
    All I ask of living is to have no chains on me,
    And all I ask of dying is to go naturally

    (Ans When I Die: Blood Swet & Tears circa 1970: Copyright Laura Nyro)

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  • last_days_of_disco says:

    I don’t think this is going slowly at all, I think its boiling up just nicely.

    B&B is stuffed and the gubberment is going to find “funding B&B secretly” really difficult.

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  • Yeah, this is going to be the opportunity to do a “Northern Rock” properly. Not nicely. Not without bad consequences for the housing and bank equities sectors. But without panic, and to the favour of the average depositor and without relying on the taxpayer in any way.

    The BoE has shored up the bank failure provisions- every depositor gets 100% protection on £35K now, and they access to this relatively quickly in the event of failure. B&B must lodge the full value of this commitment immediately with the BoE. (Funds can come from premium account – i.e shareholder value = 0) In exchange for the potential inconvenience of a few days without access to their money, B&B could offer depositors a good, high savings rate. This might even attract enough depositors to rebalance the bank, though I doubt it. They key thing is that there are few ugly scenes of a bank run as this bank fails, which it almost certainly will.

    And when the bank fails, the remaining debt obligations for the BuyToiLet rubbish can be packaged and resold for pennies in the pound, a firesale at market rates. This might net enough to pay off the administrators and leave 2 bits or so for each shareholder. And, with this rubbish but cheap to buy CDO in the market, the market will find a bottom… more headaches for mortgagees as what little is happening in the wholesale market is going to go towards firesale existing debts and not risky (and expensive) new debt issue. Its very similar to what happened in the dot com crash – Sun Microsystems not only lost many customers, but even more because existing customers bought cheaper, 2nd hand kit that came onto the market as other companies failed. And that’s in a market where technology advances actually drives people toward new product! Imagine what is going to happen in the debt markets?

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