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RAB rattles Rock

Robert Peston | 07:04 UK time, Saturday, 24 November 2007

The largest shareholder in Northern Rock, RAB Capital, is limiting the room for manoeuvre of the bank's board as it seeks a solution to its financial crisis.

In an interview with me, broadcast on the Today Programme, the chief executive of RAB – which controls almost 7 per cent of Northern Rock – says that he would not hesitate to vote against any takeover of Northern Rock which did not properly value its shares.

Northern Rock's preferred route out of its current crisis is to sell itself off in whole or in pieces to other banks or financial institutions.

Almost any rescue of the Rock would require shareholder approval, so RAB – one of London's leading hedge funds, with around £4bn under management – has clout.

Philip Richards, RAB's chief executive, is trying to reinforce his influence, by insisting that even relatively small asset-sales by the Rock should not take place without a shareholder vote.

He does not want Northern Rock to sell assets now, because he fears it would obtain a terrible price for them, due to the crisis in money markets

Richards wants a solution that leaves Northern Rock more or less intact and with existing shareholders in control of a significant proportion of the bank's shares - which would rule out many of the rescue proposals being considered by the Rock's board this weekend.

Richards says that the preliminary rescue proposals from a consortium led by Virgin, and a separate one by the former chief executive of Abbey National, Luqman Arnold, seem to offer the best prospects for shareholders of those on the table.

He characterises other proposals that have been put to the Rock board as coming from “vultures”.

Richards is potentially at odds with the Treasury, whose first priority is to secure repayment of around £25bn of taxpayer-backed loans to the Rock and is less concerned about returns to shareholders.

If the Rock were put into administration under insolvency procedures, as some have urged as the best way to secure repayment of public funds, Richards does not rule out suing the Treasury – though he hopes it would not come to that.

Comments   Post your comment

  • 1.
  • At 07:54 AM on 24 Nov 2007,
  • Peter Copping wrote:

Is Richards speaking for all the hedge fund interests in Northern Rock? An interesting article a week or two ago in the Indie revealed these were substantial and volatile. Is Rock now a game of poker played with the BOE and the hedge funds with shares rather than chips? Should other join in?

  • 2.
  • At 08:11 AM on 24 Nov 2007,
  • Tom wrote:

If RAB's "£4million under management" gives them "clout", what does our £25million give the Treasury?
Investors pay their money & take their chance.
Having read yesterday's post & comments re Qinetiq, I don't hold out much hope of the Treasury holding firm in the national interest.

So Richards is threatening to sue the Treasury if it puts the Rock into administration.

Given that without the Treasury loan, the Rock would have been in administration weeks ago - or worse - this is the most extraordinary statement I've heard in ages.

If Richards and RAB veto a solution on the grounds of covering their own hides then the Treasury *must* put the Rock into administration.

  • 4.
  • At 08:37 AM on 24 Nov 2007,
  • Ray Phillips wrote:

2#Tom,
There are different views about national interest and how best to secure it. Mine would be that contrary to much of the pap put out on these blogs, NR complied with all the regulatory requirements, the BoE failed to act decisively in ensuring sufficient liquidity in the system (when it would have made a difference) and the Treasury has a responsibility now to all stakeholders to help create the conditions in which the bank can be rebuilt over the next few years. In fairness to Darling this is what he seems to be doing despite the intense pressure he is being put under.
If the Treasury sets aside bids which have reasonable prospects of rebuilding the bank and making big inroads into repaying the public purse, it will need a very stout legal defence for its actions which I cannot anticipate.

  • 5.
  • At 08:44 AM on 24 Nov 2007,
  • Tony wrote:

Richards should stop snivelling and accept the fact that RAB have bought a pup. They hoped to gain handsomely from the misery of the Rock - that's why they bought into it after it went belly-up!

There's surely nothing more pathetic than a speculator who moans because he can't pick 'em.

  • 6.
  • At 08:53 AM on 24 Nov 2007,
  • Dave C wrote:

I'm sure that any attempt by Richards to sue the Treasury would be laughed out of court and he'd have even more egg on his face than he does right now having lumbered RAB with a 7% stake in a failing / failed bank. Way to go!

  • 7.
  • At 08:53 AM on 24 Nov 2007,
  • J Powell wrote:

If Northern Rock substantialy increased the interest on mortgages the "problem" would dissapear.

Either customers would move their mortgages, repaying & therefore reducing NR's need to borrow or making a profit on the BoE's loans.

Is this too simplistic?

JP.

  • 8.
  • At 08:54 AM on 24 Nov 2007,
  • Bing wrote:

The market is always right. The market price pays for a bond plus an option.

All the shareholders pay a price for:
1) an instrinsic value
2) a time value
3) shareholder voting rights
4) control of a big business
5) prestige of a FTSE100 banker
6) long established banking licence
7) a right to borrow and to lend
8) the infrastructure
9) the distribution network
10) the brand and goodwill
11) lender of last resort facility
12) the well regarded staff

To deny them these rights may be seen by international capital as "quite a ROBBERY".

Capitalism is still the RELIGION of our choice?

  • 9.
  • At 09:14 AM on 24 Nov 2007,
  • Guy Thornton wrote:

This Richards chap could easily establish his bona fides by signing a personal guarantee for taxpayer money loaned to his company. Obviously his potential contribution would be a drop in the ocean but it would be nice to see him prepared to stake his house, etc on the value of his assurances. Not bloody likely.

  • 10.
  • At 10:11 AM on 24 Nov 2007,
  • Danny wrote:

#4, yeah there has been alot of pap written, a large portion of it written by you.

NR met regulatory requirements - so what? So did Barings. It had a model which relied on liquidity in the commercial money market for it. Liquidity didn't dry up for larger banks but it did for NR because no one wanted to be the last guy to lend to NR. It is not the BoE's job to provide liquidity. It's job is to target inflation and with the current inflation it couldn't pump enough liquidity without inflation going through the roof.

The Treasury has no responsibility to the "stakeholders" of NR. It has a responsibility to the public as a whole.

Just rocking back and forth going "NR is a great business, NR is a great business" doesn't make it so. This is a firm whose key assumption was flawed. It is not the first to assume instant, unconditional and cheap access to capital - Enron did, LTCM did, Pets.com did, Global crossing did and they, like NR, were all wrong. Should the Treasury have intervened to save them? Or any firm with a "temporary liquidity issue"?

  • 11.
  • At 10:14 AM on 24 Nov 2007,
  • Stephen wrote:

It is outrageous that a speculative investor who bought into NR after its diffculties became apparent should now seek to blackmail the taxpayer into doing something that will benefit that same speculative sahreholder but disadvantage the taxpayer without whose munificence the bank would have collapsed within 48 hours. Shareholders are risk-takers by defintition. Let the risks lie where they fall. This bank should be put into amdinistration without further delay, and a proper rescue plan worked out which gives the taxpayer some prospect of seeing his 24 billion repaid (even if over a long period of time).

  • 12.
  • At 10:33 AM on 24 Nov 2007,
  • Stephen wrote:

It is outrageous that a speculative investor who bought into NR after its diffculties became apparent should now seek to blackmail the taxpayer into doing something that will benefit that same speculative sahreholder but disadvantage the taxpayer without whose munificence the bank would have collapsed within 48 hours. Shareholders are risk-takers by defintition. Let the risks lie where they fall. This bank should be put into amdinistration without further delay, and a proper rescue plan worked out which gives the taxpayer some prospect of seeing his 24 billion repaid (even if over a long period of time).

  • 13.
  • At 10:40 AM on 24 Nov 2007,
  • ACL wrote:

Richard said that NR is currently solvent according to all financial rules so the government cannot put it into administration.

What he does not mention is that NR would have been bankrupt if the government and BoE had not intervened twice in this debacle. Once to guarantee NR customers' deposits and another time to provide a £25Billion+ taxpayer's backed loan.

I know Richard is trying to limit his own losses but his arguments are less sound than the many pro and con NR arguments on this blog.

What he needs to do is to put his money where his mouth is and increase his investment in NR. Even better why not come up with a viable rescue plan that does not depend on taxpayer backed corporate welfare - the ongoing BoE loan.

  • 14.
  • At 10:40 AM on 24 Nov 2007,
  • Scamp wrote:

I love it. The whole system is slowly unravelling..

Will RAB Capital be the first hedge fund to go bust? When will the first Private Equity company begin to show signs of stress?

A couple of decades of sheer greed since the Big Bang might be coming to a sticky end and Gordon Brown's overdependence on the financial services sector to produce growth could be going to bite him well and truly up the bu*.

I love it.

  • 15.
  • At 10:40 AM on 24 Nov 2007,
  • Beth wrote:

J Powell, Yes it is too simplistic because they have customers on their mortgage books who have fixed rates which they cannot change until the fixed period expires. They have increased their current rates to slow business coming in.
It would cause a problem to other lenders if a large majority of customers moved away from northern rock bearing in mind that it is a global credit crunch and all banks are tight on money at the moment, some more so than others. The other banks might not have the funds to cope with an influx of business

  • 16.
  • At 10:43 AM on 24 Nov 2007,
  • Liam O'Donnell wrote:

Robert

Talking of "vultures", you should have asked Richards how long his hedge fund has owned shares in NR.

  • 17.
  • At 10:48 AM on 24 Nov 2007,
  • Beth wrote:

J Powell, Yes it is too simplistic because they have customers on their mortgage books who have fixed rates which they cannot change until the fixed period expires. They have increased their current rates to slow business coming in.
It would cause a problem to other lenders if a large majority of customers moved away from northern rock bearing in mind that it is a global credit crunch and all banks are tight on money at the moment, some more so than others. The other banks might not have the funds to cope with an influx of business

  • 18.
  • At 10:49 AM on 24 Nov 2007,
  • Ben wrote:

I would have thought that the opinion of RAB Capital doesn't count for much. It will be the Treasury that makes the decision, as all it has to do to force NRK's hand is to threaten to publicly state that it won't renew the loans - immediately making NRK insolvent. Because it has this power it is clearly acting as a shadow director and should state as much, and NRK shares should have been suspended weeks ago.

Given the loans that NRK has with Treasury, its shareholders have virtually no say in the matter. And HMT should be focused solely on safeguarding taxpayer's money, not on that of equity holders (I and everybody else, as somebody who holds shares take on additional risk for additional gain and no amount of bleating changes that).

To be honest Robert, I'm more interested in your views about the report in yesterday's Guardian that the second tranche of Treasury funding is only secured with a floating charge instead of against set, high-value mortgages. If this is the case it's an absolute bloody scandal and I hope to see the BBC screaming from the rooftops about it imminently.

  • 19.
  • At 10:50 AM on 24 Nov 2007,
  • Charles Kelsall wrote:

"Mr Richards said fundamentally Northern Rock was a good business."

I think not, how can a "good business" model rely on sourcing funds in a market which has out priced itself ?

  • 20.
  • At 10:59 AM on 24 Nov 2007,
  • john thomas wrote:

When was the last time turkeys voted for Christmas?

Any decisions regarding NR that does not pave the way back to the rosey days of £12.50 per share will not meet with RAB's or any other shareholders' approval. However, given that NR, as a going concern, forever tainted as it is, is unlikely to be the result we eventually see, just what weight should be given to this gentlemans comments I quite fail to see.

The problem remains that the sum of the parts are far more valueable than the whole will ever be. The BoE, Darling, the remaining directors and the Market all know this. Darling's problem is that after such a bad news week the like of which few politians are ever unlucky enough to experience, and despite that acting now, selling NR's loan book, moving all depostitors to other banks and therefore .....hopefully getting most of the taxpayers £24 billion back, is the only sensible course of action open to him, it is one he will not have the political nerve to take.

There does remain however one question. NR's loan book was first touted as having a value of £130 billion, then £113 billion and it is usually now refered to as having a value of £100 billion. As a taxpayer and therefore being NR's major (and only , and only relevant) investor, I would like to know the exact value of the asset against which my money is being lent. Much of the current credit crisis is due to the opaqueness with which banks opporate. I would suggest that we, the taxpayers, should be shown some clarity.

Agree with RAB chief -- time to sort this fiasco, it has become symbol of ongoing credit crisis and may take attention away from the root cause and real culprits , which may be Darling and co?

  • 22.
  • At 11:25 AM on 24 Nov 2007,
  • D A B wrote:

Hedge fund chief executive calls others "Vultures". The words "Pot" and "Black" spring to mind.

  • 23.
  • At 11:58 AM on 24 Nov 2007,
  • Alex wrote:

Any investor with RAB Capital should go and queue outside their headquarters to ask for their money back. What a bunch of jokers. It would be interesting to see how many other wrecks they have in their portfolio.

  • 24.
  • At 12:00 PM on 24 Nov 2007,
  • Fed up taxpayer wrote:

If I go into a bookies, I may win , I may lose, I can't get anyone to give me my stake back. Why is it that shareholders are held is such high regard ? They know full well that shares can down as well as up, if they go up they keep the profits and if they go down, they whinge and expect everyone else to bail them out.

  • 25.
  • At 12:14 PM on 24 Nov 2007,
  • Charles Kelsall wrote:

"Mr Richards said fundamentally Northern Rock was a good business."

I think not, how can a "good business" model rely on sourcing funds in a market which has out priced itself ?

  • 26.
  • At 12:18 PM on 24 Nov 2007,
  • Graham wrote:

There's an old addage that if you owe the bank say £1000 and you haven't got it when they want it back you've got a problem, but if you owe them £100m in the same circumstances then its the bank that has a problem.

So having belatedly bailed NRK out in a cackhanded manner that has destroyed the brand value, its now the tripartate group of govt, Treasury and BOE that has the major problem. How do they extracate themselves without losing public money and with it the next election? Changing ownership of NRK in itself doesn't change matters one iota. What the government would seek is to protect the loans it has given to NRK. You need the deepest possible pockets to repay the government loan quickly and there aren't many willing to take the risk, despite the huge potential gains to be made by buying NRK assets at a discount. So you've got to get government backing on the one hand and the backing of the shareholders on the other. The shareholders know Christmas is comming and they are not turkeys. There are some very big players there now as shareholders, because the upside could be huge and the downside limited.

In an internal memo to staff this week, AA said that they continue to look at all the options, and the options continue to include ' a stand alone' scenario. Unless the government pull the plug and send NRK into administration, which would immediately destroy any remaining shareholder value and simultaniously cut their own throats while providing fat profits to the waiting vultures, I see every prospect of NRK continuing to trade at a low level of new business activity, for the credit situation to stabilise, for the confidence of other banks to return, for the losses from toxic lending in the US to be finally borne by their unfortunate holders and for life to get back to normal. This could take 2-3 years. But I don't at the moment see the likelyhood of any offers that meet the governments AND the shareholders interests.

The most likely scenario for me is the go it alone, followed by the nationalisation route - remember what they did to railtrack (although i doub they'll want to try that again!). The offers from outside offer little for the shareholders and the duty of the board (but certainly not the government) is to the shareholders. I'm sure many of those on this board will have a different opinion, and I'm sure there are many twists to come. but it wouldn't surprise me for the board to announce in Feb 2008 a set of figures for the current year that show a profit circa £250m, and forecast of profit for 2008 and a decision to carry on as they are, and to gradually stabilise the position. Then takeover by another at a more reasonable price will be back on the cards.

The Rock isn't a Rover.

  • 27.
  • At 12:21 PM on 24 Nov 2007,
  • FR wrote:

Grrrr. Nasty little whiners crawling out of the woodwork, bemoaning their losses because of their own greed.

This kind of statement from someone in the investment business will possibly turn general positive public sentiment against NR - creating negative vibes - but then, maybe that's the plan.

Either that or he's an idiot. Hmmmm.

  • 28.
  • At 12:23 PM on 24 Nov 2007,
  • Mike Walker wrote:

14

Rab go bust?

I suggest you do some research.

RAB has £Billions under management. A £100 million loss or so is peanuts.

Tour post seems to welcome a recession in the Uk which will hit us all.

Your attitude sucks as much as your lack of knowledge.

  • 29.
  • At 12:23 PM on 24 Nov 2007,
  • Rob wrote:

The BoE allowed the UK banking system to be affected by the sub-prime issues in the US. The Federal Reserve took steps to protect their banking system and so did the EU, so it is the BoE's fault. Also NR has had £14bn withdrawn and deposited in other banks, these banks are paying upwards of 7% to attract these funds, which shows they are desperate for liquidity. If these funds were not tfred from NR to its peers then they would likely be in the same position. NR has 6,000 employees and will support far more jobs in the UK indirectly. The best thing for shareholders is also the best thing for the Gov as the better shape NR is in the more secure the Gov's loans are. Remember NR will not be writing off £Bns as US banks have, it is a good business. Lets not allow the media (a lot of comment is inaccurate) to destroy an institution which is basically a 'good egg' (it pays profits to its own charity every year). Lastly, lets not forget that the Gov's coffers are actually benefiting from the penal interest levied on NR.

  • 30.
  • At 12:25 PM on 24 Nov 2007,
  • Paul wrote:

I once owned shares in the UK's largest industrial company, Marconi (formerly GEC). Its business model was far better than Northern Rock's and yet it was allowed to reorganise itself in a way that almost destroyed the value of its shares. No one stepped in then.

The BofE only did so in NR's case to protect the banking system as a whole, not rescue NR shareholders. That speculators who have piled in knowing full well the state of the business expect the taxpayer to bail them out is more than a cheek; it's a step on the road to economic ruin.

  • 31.
  • At 12:39 PM on 24 Nov 2007,
  • S. Barraclough wrote:

Hold on lads! The law exists to protect us all. Your pension is funded by shareholdings, and if you decide that the law no longer applies to shareholders of N. Rock, then how safe is your, or anybody's pension? It matters not one whit to the law when the shares were purchased; the Company belongs to all the shareholders,and Mr. Richards is speaking for a very large proportion of the 150,000 registered shareholders, including myself! We, by the way, are very largely British and tax-payers ourselves, so stop pretending that we are some sort of alien profiteers. Profiteers, of the 'sell-short' variety, are largely to blame for the present low share price. S. Barraclough.

  • 32.
  • At 12:43 PM on 24 Nov 2007,
  • Ray Phillips wrote:

Danny #4

Barings was defrauded by a member of its own staff - your analogy is entirely inappropriate.

As regards the BoE maybe it would help if I copy its 'Core Responsibility 2'.

Core Purposes - Financial Stability
The Bank of England has played a key role in maintaining the stability of the United Kingdom's financial system for 300 years and it is now a core function of most central banks. A sound and stable financial system is important in its own right and vital to the efficient conduct of monetary policy.
.....

Lender of last resort

In exceptional circumstances, as part of its central banking functions, the Bank may act as "lender of last resort" to financial institutions in difficulty, in order to prevent a loss of confidence spreading through the financial system as a whole. This role is set out in the Memorandum to Understanding, which also establishes arrangements for a Standing Committee of the three bodies to ensure effective exchange of information and to co-ordinate the response to a crisis.'

After messing up in August and September the BoE is at least now attending to one of its 2 core responsibilities. Some people seem not to understand or like that.

As regards hedge funds there are plenty that have bet heavily the other way. Philip Richards has every right to put out his perspective on the situation including a gypsy's warning that decisions must be taken without prejudice. Or is free speech just for those you approve of.


  • 33.
  • At 12:45 PM on 24 Nov 2007,
  • Bryan wrote:

As RAB has less than 7% of Northern Rock's share capital it cannot block any deal. The BBC has seriously overstated Richard's power. During the Today programme the first item on the news was the RAB story stating it could block any deal it did not like. Quite ridiculous.

  • 34.
  • At 12:52 PM on 24 Nov 2007,
  • Simon Stephenson wrote:

Can someone tell me what are the odds against the best overall policy relating to the Northern Rock predicament coinciding with the solution offered by one of its major shareholders?

Why then are we giving Mr Richards house room other than to invite him to pass on factual information that we haven't already gathered from elsewhere.

  • 35.
  • At 12:53 PM on 24 Nov 2007,
  • Ray Phillips wrote:

Tony #5

Phillip Richards snivel not a bit. He was clear and plain. If anyone thinks that they can take decisions about NR without getting the approval of major shareholders they had better think again. Of course administration and nationalisation could be forced but they are ugly beasts compared to an agreed sale.

  • 36.
  • At 12:58 PM on 24 Nov 2007,
  • mom and pop wrote:

Unless you are a robber,

if you walk up to anybody, including your mom and pop, asking for any money immediately, even when you are jsut asking to collect your money back, eg loan at penal rate, you are likely to get £0.

Unless he falls,

you know he cannot run away. So you give him a breathing space. Your interests are aligned. Flat rate first year will finish its course.

Unless the industry fades,

all its companies will get something.

  • 37.
  • At 01:03 PM on 24 Nov 2007,
  • Ray Phillips wrote:

Danny #4

Barings was defrauded by a member of its own staff - your analogy is entirely inappropriate.

As regards the BoE maybe it would help if I copy its 'Core Responsibility 2'.

Core Purposes - Financial Stability
The Bank of England has played a key role in maintaining the stability of the United Kingdom's financial system for 300 years and it is now a core function of most central banks. A sound and stable financial system is important in its own right and vital to the efficient conduct of monetary policy.
.....

Lender of last resort

In exceptional circumstances, as part of its central banking functions, the Bank may act as "lender of last resort" to financial institutions in difficulty, in order to prevent a loss of confidence spreading through the financial system as a whole. This role is set out in the Memorandum to Understanding, which also establishes arrangements for a Standing Committee of the three bodies to ensure effective exchange of information and to co-ordinate the response to a crisis.'

After messing up in August and September the BoE is at least now attending to one of its 2 core responsibilities. Some people seem not to understand or like that.

As regards hedge funds there are plenty that have bet heavily the other way. Philip Richards has every right to put out his perspective on the situation including a gypsy's warning that decisions must be taken without prejudice. Or is free speech just for those you approve of.


  • 38.
  • At 01:04 PM on 24 Nov 2007,
  • Steve Scott wrote:

Richards is right. Better for all parties simply to wait for the markets to improve, rather than jump at the paltry offers being made. The Treasury is getting interest paid on the loan in the meantime.

What really anoys me is that the Government let MG Rover go bust when they could have been saved for a mere fraction of what has been spent on Northern Rock. One rule for the city boys and another for the manufacturing sector?

  • 39.
  • At 01:05 PM on 24 Nov 2007,
  • S. Barraclough wrote:

Hold on lads! The law exists to protect us all. Your pension is funded by shareholdings, and if you decide that the law no longer applies to shareholders of N. Rock, then how safe is your, or anybody's pension? It matters not one whit to the law when the shares were purchased; the Company belongs to all the shareholders,and Mr. Richards is speaking for a very large proportion of the 150,000 registered shareholders, including myself! We, by the way, are very largely British and tax-payers ourselves, so stop pretending that we are some sort of alien profiteers. Profiteers, of the 'sell-short' variety, are largely to blame for the present low share price. S. Barraclough.

  • 40.
  • At 01:06 PM on 24 Nov 2007,
  • paul wrote:

RAB purchased 28,066,050 shares or 6.6% of NRK via CFD's
'Contract for Differences'
Source RNS Number:6459E RAB Capital plc 27 September 2007

So Philip Richards want's the government to bail out Northern Rock because he took a 'leveraged' gamble.

I find the comments from RAB nauseating when they haven't even paid for the shares (albeit a 1-5% margin), or are in effect a shareholder.


http://www.londonstockexchange.com/en-gb/pricesnews/education/firsttimeinvestors/investmentfactsheets/whyinvestinshares/investotherstock.htm#Contracts%20for%20Difference
Contracts for Difference

A Contract for Difference (CFD) is an agreement between two people to settle at the close of their contract the difference between the opening and closing price of a company’s share price. Say, for example, you agree to sell 5,000 XYZ Ltd shares at £10 (£50,000) and the price moves to £8, you make a profit of £2 a share - £20,000.

This example makes CFDs look very similar to covered warrants or spread betting. But the big difference with CFDs is you can gear up your bet, effectively borrowing money to increase your exposure to a share price gain or fall. This means you will make more money if you are right but increase your chances of making horrendous losses if you are wrong.

For this reason CFD trading is really for the experienced investor. In fact many CFD brokers will only accept people who have several years’ experience of trading shares or have already been short selling using another method. You might also be asked to lodge a deposit as security, perhaps £10,000.

  • 41.
  • At 01:16 PM on 24 Nov 2007,
  • momandpop wrote:

Unless you are a robber,

if you walk up to anybody, including your mom and pop, asking for any money immediately, even when you are jsut asking to collect your money back, eg loan at penal rate, you are likely to get £0.

Unless he falls,

you know he cannot run away. So you give him a breathing space. Your interests are aligned. Flat rate first year will finish its course.

Unless the industry fades,

all its companies will get something.

  • 42.
  • At 01:38 PM on 24 Nov 2007,
  • rupert wrote:

Short RAB Capital. Philip Richards is stupid, acting like a small private investor, its dropped from £12 , £2 is a bargain , o no its not!

  • 43.
  • At 01:47 PM on 24 Nov 2007,
  • Steve Scott wrote:

Richards is right. Better for all parties simply to wait for the markets to improve, rather than jump at the paltry offers being made. The Treasury is getting interest paid on the loan in the meantime.

What really anoys me is that the Government let MG Rover go bust when they could have been saved for a mere fraction of what has been spent on Northern Rock. One rule for the city boys and another for the manufacturing sector?

  • 44.
  • At 01:55 PM on 24 Nov 2007,
  • Jamie M wrote:

If most of the current bidders are 'vultures', that must make Phillip Richards, of Hedge Fund RAB capital, a King Vulture. He bought shed loads of this at about £3 a share, down from £12, and thought he could get some easy pickings. Now he's whingeing as he got his timing wrong and disobeyed the old investment rule about not catching a falling knife. Time he got over it and moved on - to the next carcass.

Or am I being too cynical? Have Hedge Funds suddenly discovered altruism?

  • 45.
  • At 01:56 PM on 24 Nov 2007,
  • David Talbot wrote:

Dear Sir,I feel the underlying reason for the demise of northern rock and others is greed.Greed generates lies and deceit from top to bottom(see Enron-praised but now discraced).Responsibility starts at the top.Start by controlling hedgefund and oil companies(almost above the law).Let them pay their part as the man on £15,000 pa.Time to break the oil companies hidden price fixing.Back to basics where honesty and justice are valued above greed and deceit.

  • 46.
  • At 02:01 PM on 24 Nov 2007,
  • DaveH wrote:

I bet RAB were rather full of themselves when NR was taking risky gambles and the market price was going up. Now that it has gone wrong - in another US fashion - the shareholders are threatening to sue anyone to save their own necks. However, I suggest Mr. Richards takes a look at the last attempt to do this - Railtrack.

  • 47.
  • At 02:02 PM on 24 Nov 2007,
  • Julian Coles wrote:

A detail most people seem to be missing/ignoring is that this country/people are not losing money by the BOE supporting NR.

Most of the continuing loans to NR are being provided to cover the questionably excessive interest rate being charged by the BOE.
So it is just a paper exercise, money loaned by BOE coming straight back to the BOE again.

If NR and the BOE could negotiate a more sensible rate, NR would still capable of raising a profit of £100 million a month!

#6 Dave C

Not necessarily so, just look back at what happened with Railtrack. Although the shareholders did not win in court, the government still provided funds to £2.50 a share. Different reasons I admit, but due to some of the poor handling of NR's situation there may be some sort of case.

  • 48.
  • At 02:02 PM on 24 Nov 2007,
  • paul wrote:

RAB purchased 28,066,050 shares or 6.6% of NRK via CFD's
'Contract for Differences'
Source RNS Number:6459E RAB Capital plc 27 September 2007

So Philip Richards want's the government to bail out Northern Rock because he took a 'leveraged' gamble.

I find the comments from RAB nauseating when they haven't even paid for the shares (albeit a 1-5% margin), or are in effect even a shareholder.


A Contract for Difference (CFD) is an agreement between two people to settle at the close of their contract the difference between the opening and closing price of a company’s share price. Say, for example, you agree to sell 5,000 XYZ Ltd shares at £10 (£50,000) and the price moves to £8, you make a profit of £2 a share - £20,000.

This example makes CFDs look very similar to covered warrants or spread betting. But the big difference with CFDs is you can gear up your bet, effectively borrowing money to increase your exposure to a share price gain or fall. This means you will make more money if you are right but increase your chances of making horrendous losses if you are wrong.

For this reason CFD trading is really for the experienced investor. In fact many CFD brokers will only accept people who have several years’ experience of trading shares or have already been short selling using another method. You might also be asked to lodge a deposit as security, perhaps £10,000.

  • 49.
  • At 02:03 PM on 24 Nov 2007,
  • Groucho Marxist wrote:

#21 I take it you're joking.

  • 50.
  • At 02:03 PM on 24 Nov 2007,
  • Andrew White wrote:

Mr Richard's comments plumb new depths in this already unfortunate affair. For a hedge fund manager to attempt to blackmail a government is pretty low behaviour, even by stock market standards. As far as I understand matters, it was Northern Rock's management who got the company into an illiquid position and asked for government funding. Once this has happened, the company is effectively in administation and the shareholder's views don't really count - their investment has already turned bad. Why has Mr Richards not put together a deal to rescue the company himself and save shareholders' money and taxpayers' money ? Quite simply, it is not possible to do both. Then there's the small matter of 6000 jobs......Shame on you Mr Richards.

  • 51.
  • At 02:03 PM on 24 Nov 2007,
  • csmith wrote:

If they cannot repay in full today, they must sweeten the loan deal to silence the critics. Give the lender his rightful stake for being a friend in need.

  • 52.
  • At 02:04 PM on 24 Nov 2007,
  • Julian Coles wrote:

A detail most people seem to be missing/ignoring is that this country/people are not losing money by the BOE supporting NR.

Most of the continuing loans to NR are being provided to cover the questionably excessive interest rate being charged by the BOE.
So it is just a paper exercise, money loaned by BOE coming straight back to the BOE again.

If NR and the BOE could negotiate a more sensible rate, NR would still capable of raising a profit of £100 million a month!

#6 Dave C

Not necessarily so, just look back at what happened with Railtrack. Although the shareholders did not win in court, the government still provided funds to £2.50 a share. Different reasons I admit, but due to some of the poor handling of NR's situation there may be some sort of case.

  • 53.
  • At 02:38 PM on 24 Nov 2007,
  • paul wrote:

Question Re CFD's

Do CFD's carry voting rights ?

Is it ironic that the margin for most CFD's is financed for most at LIBOR +x%

  • 54.
  • At 03:41 PM on 24 Nov 2007,
  • Steve Scott wrote:

Richards is right. Better for all parties simply to wait for the markets to improve, rather than jump at the paltry offers being made. The Treasury is getting interest paid on the loan in the meantime.

What really anoys me is that the Government let MG Rover go bust when they could have been saved for a mere fraction of what has been spent on Northern Rock. One rule for the city boys and another for the manufacturing sector?

  • 55.
  • At 03:58 PM on 24 Nov 2007,
  • steve wrote:

Let's try a thought experiment. Let's just pretend that NR's mortgages books are virtually worthless and at some point or other it will have go into administration.

If the BoE had not made the 24bn loan and NR had gone into administration straight away, then the financial institutions who had made short term money market loans to NR would have completely lost all their money (along with the shareholders). Instead, as a result of the BoE loan, the other financial institutions have largely recovered their loans. (Of course in both cases the Govt would also have had to fork out as promised to recompense ordinary depositors who have lost their savings).

So in this (presumably?) extreme case, the effect of the BoE loan is to gift to other financial institutions 24bn (as there is no-one left responsible to repay the loan).

This is all very convenient for the other banks etc, who have also had their liquidity boosted by the run on NR as depositors have shifted their money elsewhere,

  • 56.
  • At 04:04 PM on 24 Nov 2007,
  • Dee wrote:

Robert,

Can I draw your attention to the following articles in the Guardian.
It they are true and the taxpayers loans become unrecoverable the consequences for the taxpayer are very worrying and lead to questions about how much the chancellor knew before he stumped up our money.

http://www.guardian.co.uk/business/2007/nov/23/northernrock.bankofenglandgovernor

http://www.guardian.co.uk/business/2007/nov/23/northernrock.creditcrunch

  • 57.
  • At 04:39 PM on 24 Nov 2007,
  • John white wrote:

According to the tom toms from across the oceans Mother Brown is hopping mad with Ally D. Apparently poor old Ally forgot to pack Mother B's favourite Jimmy Shand CDs before the safari so he had the bright idea to air mail them over. At this moment they are officially listed as missing. No wonder Ally D is furious with the so called shareholders of the Rock who are threatening to veto any rescue plan that does not line their pockets with gold. He has already sent a suggested line to take to Mother B which received a sharp response along the lines of go tell them to expletive themselves, who the expletive do they think we are and what the expletive universe do these expletive inhabit. Ally has interpreted this to mean that Mother B is not totally in agreement with the so called shareholders. Over a jellied eel supper last night Tubby Isaacs swore that he heard Ally threaten to pull the rug from under the expletive if they didnt get serious and soon. Who the expletive do these expletive think is financing this knees up and do they have any idea the expetive which has caused for Mother B. May be these expletive should like like to know what it is like to be a dead man walking politician? Apparently the line to take now reads as follows. HMG is striving to complete an orderly change of ownership of the Rock which causes the least fuss in the press for Mother B. Surely some mistake Tubby did Ally really say that?

  • 58.
  • At 05:38 PM on 24 Nov 2007,
  • Steve wrote:

If the chancellor put Northern Rock into administration we will see another run on the bank adding another 15-20 billion in funding requirements. There has been limited interest from anyone wanting to take over with 25 Billion debt let alone 45 Billion. going into administration would also effectively put the 6000 staff at the bank into the cinsultation stage. This amount of staff means 3 Months paid as well as redundancy payments and leave and holidays. This will soon add up to about 70 Billion required. I am sure the chancellor realises that this is not in the best interest of the taxpayer, the workers and the shareholders. It is easy to see that a forced sale could cost the government more than the loan it has at the moment.
The current share price is a result of over ambitious commentators who are after headlines, they should consider the wider implication of their reporting techniques and not be so biased. There are a lot of positives regarding Northern Rock which the BBC has chose to ignore in their reporting. Another run on this bank will have a domino effect on other banks and we could see people putting cash under the matress just before Xmas. What is that going to do to the economy let alone house prices. Shame on Mr Peston, you have had the headline, don't ruin Xmas for the rest of the country, leave Northern Rock alone to get itself out of this mess.

  • 59.
  • At 06:24 PM on 24 Nov 2007,
  • Turkeybellyboy wrote:

Has everyone forgotten that the FSA was asleep at the controls?

  • 60.
  • At 07:49 PM on 24 Nov 2007,
  • Steve Scott wrote:

Richards is right. Better for all parties simply to wait for the markets to improve, rather than jump at the paltry offers being made. The Treasury is getting interest paid on the loan in the meantime.

What really anoys me is that the Government let MG Rover go bust when they could have been saved for a mere fraction of what has been spent on Northern Rock. One rule for the city boys and another for the manufacturing sector?

  • 61.
  • At 07:55 PM on 24 Nov 2007,
  • Danny wrote:

#37, Ray thanks for the utterly irrelevent and useless post.

Is anyone saying Mr Phillips or you cannot express their opinion? Are the BBC police rushing to arrest him or you? I don't care if he talks his book. As a person who has taken a massive punt on NR, he is perfectly allowed to ramp its prospects. As long as the taxpayer - ie me - doesn't have to stump up anymore cash.

As for your posts on BoE's job, it is not clear that NR failing makes a "systemic risk" to the banking system, given no one was lending to them. It is also not clear that NR failing would impact the financial system anymore than Barings failing would have. Why would a tiny bank failing cause the whole system to fail?

NR should have gone under just like Railtrack should have. As for whining from shareholders, I suggest they pay back with interest all the profits they made above base rate and in return the government pay them the coupons they would have got has they invested their money in a risk-free asset.

  • 62.
  • At 08:23 PM on 24 Nov 2007,
  • hex wrote:

lets see if i get my sums right...

northern rock says it had about £115Bn in assets at the start of this crisis, since then a significant number of savers and mortgages have left, and in the last announcement thay stated they have about £100Bn with £50Bn of that tied up in offshore investments.

of the £50bn or so left its taken 3 months to loan £25Bn from the treasury so that leaves the rock with about £25Bn, or going by past performace about 3 months 'till its flat broke

then where will the treasury, RAB and the other major shareholders be?


The whole scenario of this thing is kind of comical. So short are our memories.

The idea that there is anything left of intrinsic value is preposterous. What? The pens in the lobby? Even they have "Northern Rock" printed on them. They might just as well say "Welcome to Chernobyl!"

Northern Rock in dot.com era terms is the CLIPPITYCLOP.COM nag that came in last with no jockey onboard.

NR shares are worth exctly what you can sell them for all the way down to .0001 And this guy Richards can head fake all he wants, the volumes on the big board showing suckers with loose change in their pocket are fewer and fewer every day as this thing tanks belly-up into the horizon of a glistening sea filled with so many other similar wrecks.

It's over. Elvis has let out his wide sequinned belt, and, left the building in his slippers.

And those who think this thing could come back, clearly don't understand what it means for a bank when customers line up at the door to withdraw their money.

There is nothing more obvious than that, unless it is "irrational exuberance".

Don Robertson, The American Philosopher

  • 64.
  • At 10:33 PM on 24 Nov 2007,
  • Ray Phillips wrote:

61# Danny
Insults do not improve your arguments.

I too am a taxpayer; so you do not speak on behalf of all taxpayers. The only people who have anything close to such a claim are Ministers and they take a different view from you.

You seem to have some problem with the core responsibilities of the BoE. I suggest you visit the BoE website and look at the Bank core responsibilities. There you will find clear mandate for its interventions which should have come earlier and more decisively.

A well reseached piece in the Telegraph this morning said about the NR crisis:-
' ...tensions flared up early in the credit crunch; in August after the ECB and the FR flooded the markets with cash to offset the impendinhg credit crunch, the Government put pressure on Mr King to do something similar.
Mr King resisted, letting officilas know he was making it a matter of principle that he should have the ultimate say. His argument was that if banks were bailed out , it would only encourage them to take more risks in the future. He became a lonely but determined figure in government circles. Treasury officials argued that he was overstepping his bounds by opposing an injection of funds to ease lending between city banks. They saw the govenor as a stubborn idealist ready to resign before allowing banks to get away with bad loans. 'The rest of us were mucking' said one of those involved. The govenor's position was 'I am right'.'

But he wasn't; there was a run on the NR and billions have been loaned to prevent a crisis becoming a disaster for the UK financial industry. As the Economist said
The BoE - the Bank that got it Wrong.

And it gets worse. Lloyds was prepared to enter discussions about taking over NR under arrangements
where the BoE would only fund NR in the first year and all loans would be paid back in full with interest in year 3. Mr King was opposed to a deal - a deal that would have avoided the £24bn fiasco. Insiders say that the deal could have been constructed to steer clear of Stock Exchange and EU obstacles. Well done Mr King, Governor of the Bank that Failed.

We are now in a poker game that will be alien to and no doubt distasteful to Mr King. However his misjudgements could be extemely costly and he will just have to put up with it. NR will be sold in whole or in part. The government cannot allow itself to get caught up in a lengthy legal wrangle with major shareholders. So it will need to find a way forward that would not look to a court as wilfully prejudicial to other stakeholders. It is of course self serving of Philip Richards to say as much ; but that does not make him wrong.

  • 65.
  • At 12:11 AM on 25 Nov 2007,
  • Jel wrote:

Not only was the FSA NOT asleep at the helm, it begins to look as though they were actively steering the ship of the economy onto the rocks through their inaction in allowing their erstwhile banking colleagues carte blanche in such dubious complex-instrument deals such as these all-risks-included mortgage packages.
On Thursday the NAO keelhauled the PM for his decision as Chancellor to offer the MOD research arm, QinetiQ, to a single preferred bidder, the Carlyle Group, for a pittance, because he did not negociate a basic understanding about the value of the company before they started - he effectively gave the company away for a bargain-basement price. The senior managers were extremely well rewarded/heavily bribed, depending on your outlook, imputably to stay stumm. The Carlyle Group is made up of a number of close friends of the Bush family, whose business ethics have always been particularly correct, especially in the run-up to WWII when they established the family fortune by providing the financial backing for German rearmament. And the Group Chairman happens to be particularly good friends with Our Tone.
Three days after being castigated by the NAO, that well-known recipient of CDs and criticism about the travel budget of the Chief Executive, the Government starts the fire sale of Northern Rock by an identical single preferred bidder process, giving the company away for a fraction of what Lloyds TSB were prepared to pay for it, which was scuppered by the said Chancellor in
his dealings with the Treasury.
The NAO require competitive bidding in most expenditure, but for some reason cannot bring themselves to act proactively to stop such abuse as this - I would surmise it is a question of a view of responsibility and accountability to the government which forces them to hold their hands. It begins to look as though we're actually being goverened by a bunch of asset-strippers.
If this is so, then the Treason Felony Act 1848, which is still on the books, states "If any person whosoever shall...compass..to deprive...our Most Gracious Lady the Queen...in order by...constraint to compel her to change her measures..., every person so offending shall be guilty of felony...", ie forcing Her Majesty to change the law is a treason felony. In the Rusbridger opinion 2003, the Lords of Appeal expressed a number of opinions touching on an adjacent, overlapping interpretation, following Lord Steyn's opinion that the constructive act was of the essence of the law on the subject, but that force was not necessary in this contextual interpretation of the law, as there is a boundary to be crossed. Moreover, they pointed out that the Law Commission recommended reform of the law of treason as far back as 1977, and for the last ten years, the option to exercise this recommendation has lain in the hands of the very people of whom I have been writing.
In other words, if the Government constructively positions a company such that every course open forces someone to break the law in some respect in selling it and the only remaining course left open by their very deeds is to sell it to a foreign interest as close to the government of another nation as is Carlyle, then that could very well be treason. And knowing about it but not blowing the whistle is misprison of treason, which is why I'm writing this.
One aspect of the Act is that there is a protection for the Chancellor from acts of treason against him, as well as against the Throne. Is he thereby immune from the Act himself? I think not, if it be shown that his acts were deliberate, as must be the case in flouting the NAO comments so soon after their QinetiQ report. One might expand the argument to a form if Divine Right of Prime Ministers, however: does the authority of the post of Prime Minister endow him with absolute immunity from prosecution regardless of his decisions, acts and deeds? Of course not, he remains accountable to Parliament, through a Vote of Confidence which is creeping inexorably closer.
It is, I suppose, coincidental that every man jack in the realm loses a thousand pounds into the new owners' pockets as things stand.
It's not unlike the argument from the new owners of QinetiQ that "the UK retains sufficient shares to have shown a significant growth in its own holding. That's nonsense: if you compare true value with an artificially-depressed baseline, of course you'll show growth, but it's pure funny-money.
It is also to be noted that a NAO Deputy Director, Mary Radcliffe, who specialised in controlling such activities, died in a road traffic accident around the time this QinetiQ deal was set up, under circumstances which were hushed up.

  • 66.
  • At 12:56 AM on 25 Nov 2007,
  • Brian Golden wrote:

I am a small Irish shareholder in NR and I agree that I made a mistake.

That said, I bought this year on official information that gave no hint of the risks.

Part of the mistake was in having far too much faith in UK financial regulation. I must admit my opinion was high, especially having worked in the public sector in London. I never thought I would see a bank run. I never thought that a regulated bank could be so vulnerable to immediate catastrophe. And I am stunned in this context that most comment in the UK is calling for me to be wiped out.

Dont worry for all those who want me to take a hit, under any proposal I will be at a heavy loss.

Part of the story is that I have to learn from my own mistakes but, at the same time, the UK has really let me down as an investment location. Very badly so far. How badly remains to be seen but the signs are ominous.

I'm not trying to have a go and only hope a point of view from my perspective might be interesting.

  • 67.
  • At 07:24 AM on 25 Nov 2007,
  • Tony wrote:

#63. I know you'll find this hard to believe Don, but there are still some people in the city who swear they have seen Elvis prowling the streets with a trolley full of dogfood!

  • 68.
  • At 09:28 AM on 25 Nov 2007,
  • Jel wrote:

Correction to my previous rant, still in checking: not Mary Radcliffe, Mary Radford, died 2006. Her obituary is here: http://nao.gov.uk/about/In_Touch_Issue_three.pdf

  • 69.
  • At 09:56 AM on 25 Nov 2007,
  • patricia Ogunfeibo wrote:

If the CFD point made above is true, the quality of yesterday's The Today Programme, is disappointing. This is because if RAB are not IN FACT a shareholder of NRK, most of what was said on the programme was baseless, and this CFD point, easily enough discovered, should have been put to Mr. Richards, as I for one, would have liked to have heard what he would have said about that.

  • 70.
  • At 11:09 AM on 25 Nov 2007,
  • Kate Rakickaite wrote:

Hello
Just have got a little question, my parents has a northern rock as a mortgage company, should they move some where else and be aware of crisis in northern rock, or should they carry on being their customer and not to worry about everything that happens around them? What can I suggest to my parents? As they don’t read any of the recent news that happens around England.
Thank you

  • 71.
  • At 03:51 PM on 25 Nov 2007,
  • Ray Phillips wrote:

Kate. Tell your parents the boot is on the right foot. Borrowers from NR have no worries; in fact neither do retail lenders - the gov has guaranteed their money. Safest place to be.

  • 72.
  • At 06:09 PM on 25 Nov 2007,
  • Employee No2 wrote:

What can you buy for the same amount as a Northern Rock share (86p)?

- a cup of tea from Java Cafe
- a new tie for Robert Preston; they are that cheap
- or you and three friends could club together and purchase a share in that other great bastion of northern banking B&B (unadvised)
- 86 of Adam Applegarth's thoughts - only if you think they are worth a penny each
- 8 minutes on hold to the NR helpline trying to withdraw your savings
- 4 cans of cheap larger
- 2 tins of chopped pork
- a bus ticket to the job centre (fellow employees only)

Or a partridge in a pear tree.

  • 73.
  • At 10:29 PM on 25 Nov 2007,
  • Yiu Kwong HUI wrote:

Lenders have helped to mortgage properties to unsubstainable level. The government had different measures to slow the property market but without success. Now the market has found its own way of levelling off, i.e. killing the banking system before slowing the property market. It is true that NR falls victim of mistakes made by the sub-prime market, but it doesn't mean they had not benefit from it too. Remember investment goes up as well as down, and you could lose more than you can afford. Grow up, I have been through this before, like Marconi. Come on, you might have been lucky so far up to the Rock affair, sometime reality isn't as beautiful as you dream to be. If there is no risk as a shareholder, nobody would like to be a saver at bank.

  • 74.
  • At 08:05 AM on 26 Nov 2007,
  • Daniel wrote:

Surely if NR is placed into Administration the best value for the shareholders and other creditors will be to demand every NR mortage is repaid straight away. What impact would that have on the economy?

  • 75.
  • At 01:29 PM on 26 Nov 2007,
  • adam wrote:

RABBER Barons....

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