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Rock in the zone

Robert Peston | 10:15 UK time, Friday, 7 December 2007

Northern Rock has been advised by its lawyers that it’s in the “zone of liquidation”.

Which sounds scary, but it’s really just a statement of the bloomin’ obvious, in that the Rock cannot fund its operations from normal commercial sources and is in hock to the taxpayers to the tune of £25.5bn.

The significance of being in that unappetising zone is that the board has to put the interests of its creditors ahead of those of its shareholders.

And that’s why the board cannot simply approve Olivant’s rescue plan, even though Olivant’s scheme is much friendlier to the interests of shareholders than the takeover proposal from a consortium led by Sir Richard Branson and Virgin.

Or to put it another way, ultimately it’ll be up to the chancellor – as proxy for the lead creditor, all of us – to decide what happens to the Rock.

Alistair Darling’s priority – apart from maintaining the stability of the financial system and protecting depositors – is making sure that we, as taxpayers, get our money back.

And what’s scary for him (and, frankly, for all of us) is that conditions in money markets are as bad as anyone can remember.

Virgin is no longer confident it can raise a jumbo loan of £11bn to repay a chunk of taxpayer-backed loans from the Bank of England – which currently total £25.5bn.

In theory, that undermines the Virgin proposal.

Except that Olivant too cannot give a cast-iron guarantee that it would be able to raise a comparable sum. All it can offer is hope that it will be able to repay somewhere between £10bn and £15bn within the next two or three months.

The Treasury had wanted to make a decision on the Rock’s future by mid December – which in reality means by the end of next week.

The options have narrowed to nationalisation versus two potential commercial solutions that are not yet wholly nailed down.

How is the chancellor to make a rational choice when money markets are so unstable?

What he needs to think about, and fast, is whether he genuinely believes the Rock is a going concern.

If it is, then there’s no ambiguity about what he should do.

He should back the Olivant plan, since the Rock’s shareholders, its owners, are shouting very loudly that they like it.

But if he loses confidence in the ability of Olivant or Virgin to raise a meaningful sum on acceptable terms from the money markets, then it will be nationalisation or bust.

Comments   Post your comment

  • 1.
  • At 10:39 AM on 07 Dec 2007,
  • Mre wrote:

Stating the obvious again Mr Peston. Your so clever.

  • 2.
  • At 10:40 AM on 07 Dec 2007,
  • Chris S wrote:

This is quite a straight forward issue. Unless a potential bidder can line up lenders that are committed to taking over the BoE loan immediately, they are not actually contributing a solution. Instead they are getting a chunk of a company while leaving considerable risk with its main creditor. In other words, they are getting it on the cheap.

For the price to be right, a bid needs to inject sufficient share capital to create the necessary buffer so that lenders will take over the loan from the outset, ie. on commercial terms. Anything else is BoE subsidising the new owners. In which case, it would be better if that owner was the public itself

  • 3.
  • At 10:51 AM on 07 Dec 2007,
  • D Smith wrote:

I believe the decision that Darling makes will be a political one for the Labour Party. He will try to save its heartland votes and the 60+ MPs by protecting the North rathet than the taxpayer.

  • 4.
  • At 10:56 AM on 07 Dec 2007,
  • phil wrote:

What is the advantage to the Treasury of nationalisation?

Fine if the Rock is rescuable, but if it is not then the Treasury surely moves from having first claim on the banks assets to being responsible for ALL its debts. If it is rescuable then let Branson or someone rescue it.

Nationalisation of NR is just another method of the State covering the risks taken on by private capital. If it is to be nationalised then it has to go into administration first.

  • 5.
  • At 11:04 AM on 07 Dec 2007,
  • Andrew White wrote:

Question: How on earth can bids put forward by people who can't be sure of raising the cash be considered ?

Answer: when the (sensible) alternative of the bank being nationalised is regarded as political suicide.

Finally, we have "official" recognition that NR is effectively insolvent, something anyone with a grain of sense realised months ago.

Whatever happens now is not going to be pretty: sizeable redundancies, shareholder losses and a protracted burden on the taxpayer are all inevitable.

The question is does the government want to take responsibility for all this or shoulder it off on a "rescue" bid subsidised by the taxpayer.

Answers on a postcard please....

  • 6.
  • At 11:14 AM on 07 Dec 2007,
  • Mre wrote:

To Mr D Smith #3

Are you saying that people in the North are not taxpayers ?

Of course they are you fool.

  • 7.
  • At 11:28 AM on 07 Dec 2007,
  • Steve Perry wrote:

Are you going to keep banging on about this until you cripple another company with sensationalist reporting? You are clearly proud of being the first one to break this story (surely via greased-up contacts rather than actual investigative journalism) and you seem intend on kicking the dead horse while it's down.
Surely the business editor should be investigating more important stories such as Coka Cola's links to child labour, or how one can defraud life assurance companies using a canoe.
Surely??

  • 8.
  • At 11:34 AM on 07 Dec 2007,
  • Groucho Marxist wrote:

As one of the contributors to this blog wrote, in difficult times you have to scale down your operations. As he said, the only viable model in such a climate is one where the company is solely about debt collection. That would be sustainable, albeit a political firestorm.

The Northern Rock is bust. That is a fact. The offers on the table cannot guarantee funds, and EU rules won't encourage anyone to risk billions on the verge of a banking crisis.

Although people will fume about the loss of taxpayers money, I have never seen a penny of taxpayers savings so I don't understand what consequence it will really have for any individual. It won't be inflationary and it won't be responsible for service cuts.

Nationalisation - political nightmare that will see the money loaned increase.

  • 9.
  • At 11:37 AM on 07 Dec 2007,
  • Ian wrote:

Mre,

people in the North East may be taxpayers but so were the many times more employed by MG Rover, Corus (British Steel that was), Marconi (GEC that was) and many others let down and abandoned by this government.

A fraction of the support given to northern Rock could have saved many of these jobs in companies who were left out to dry by the current labour administration!

The only problem these companies had was that they weren't in Tony Blair's constituency or many other of the so called new labour ministers constituencies in the North East.

If you don't believe me just click this link

http://news.bbc.co.uk/1/shared/mpdb/html/region_4.stm

Lots of familiar new Labour names there!

  • 10.
  • At 11:37 AM on 07 Dec 2007,
  • Micky wrote:

..and are jobs safe?

  • 11.
  • At 11:54 AM on 07 Dec 2007,
  • Andrew wrote:

I wonder if the BoE interest rate cut yesterday was made with the Northern Rock debt in mind, to reduce the interest payments and make a rescue more attractive?

  • 12.
  • At 11:57 AM on 07 Dec 2007,
  • Mark wrote:

@Mre

That should be "You are so clever" or "You're so clever". It is best to get these things right...

  • 13.
  • At 11:59 AM on 07 Dec 2007,
  • John wrote:

The "taxpayer" may be lending NR money at generous terms but the "taxpayer" is also partly responsible for NR's problems.

NR is short of 25bn, but according to previous articles, it has lost 10bn in deposits since the run, which could have been completely avoided if the BOE had been on the ball.

It also seems to me that the media {The BBC very much included} contributed to run.
In particular it was several days into the run before I saw/heard any mention of the then existing guarantees to bank depositors.

  • 14.
  • At 12:04 PM on 07 Dec 2007,
  • Dean wrote:

Odd. Darling should do whatever it takes to get the £25bn back, taking no account of what the shareholders may want.

Straight to the point Robert, either or! - I like it.

  • 16.
  • At 12:21 PM on 07 Dec 2007,
  • G Mills wrote:

I have been following the Northern Rock affair closely and with interest since the situation started in the summer. Living in the North East, I don't work for NR, but know several people who do, none of whom I want to see lose their jobs. On a wider scale NR is also very important for the region's economy.

What I have gathered by reading many of the posts is that the taxpayer has not lent Northern Rock anything. Rather the Bank of England has created some Sterling out of thin air (£25 billion pounds of it), and has lent it to NR via the treasury. NR rock is supposed to pay it back with interest, so B of E should get their £25billion back, and the government (and therefore the taxpayer) gets the interest.

Therefore if everything goes OK, the taxpayer is actually better off with this arrangement.

The downside, is that the money supply has been increased by £25 billion, and this can have an inflationary effect (in the short to medium term, until that money has been paid back to B of E at least).

Also, if NR cannot pay back the £25 billion, then the residual money will be "out there" forever.

As far as I can understand it, B of E were prepared to create the money, because they were given some collateral in return (the right to debt on lots of houses). In the olden days, I guess that if you went to the B of E with lots of gold on the back of your cart, they would have created money for you in the same way (out of thin air - or paper, more like). The reason why the likes of Farepak were not bailed out, is because they had no collateral. The way I think of it is that the B of E is like a Pawn-Broker of last resort!

Now, I might be completely wrong about this, if so, can someone please explain the real situation?

But if I am right, can everyone, including Mr Peston, stop using inflammatory language like "Northern Rock is in hock to the taxpayer". It makes it sound as though the government will have less to spend on hospitals, schools etc..., because of this loan, when in fact that's not the case at all.

  • 17.
  • At 12:22 PM on 07 Dec 2007,
  • Ian wrote:

John, post 13 there was one reason and one reason only why there was a run on the Northern Rock.

People were scared their money wasn't safe. If the Northern Rock went into administration they would only get some of it back and may have to wait months for that. Their actions were entirely rational and solely due to the actions of the Northern Rock management.

All the savers had effectively lent their money to the Northern Rock to use as mortgage loans. The savers get paid interest to encourage this loan which the Northern Rock pays to them out of mortgage payments. This is how banks work!

Imagine that you had lent someone (lets call them Mr Northern Rock) a lot of money and they turn round and say we owe the banks billions of pounds which we have been borrowing on short term loans. The problem is they won't continue to lend us it anymore as they are worried that we can't pay it back.

I don't know about you but going down to them first thing in the morning to get your money back is 100% rational to me and many others.

Don't blame the government or the depositors. The blame lies squarely with the Northern Rock Senior Management.

  • 18.
  • At 12:28 PM on 07 Dec 2007,
  • Mark wrote:

More posts from Southerners who have never been north of Watford I see. The North East is not a Labour wonderland. Labour takes votes from the North East for granted which is why it does next to nothing for us. Where are the Road, rail and air link improvements to encourage businesses to be based in the North East? People in the South wonder why house prices are so high and their roads are so traffic clogged. It's people from the north moving south to get a decent job.

Do the people who think Labour only tried to save NR think they did it to save 6000 North East jobs? It is more likely that they did it to uphold confidence in the British finance system that the South and the rest of UK PLC heavily rely on. £25 Billion for 6000 jobs/votes doesn't add up. Also, for every vote they won by trying to save NR with tax payers money they'd lose 10 times as many votes with the people they upset.

People in the North East pay taxes and don't all vote Labour just like everybody in the South don't all vote Conservative and eat jellied eels.

  • 19.
  • At 12:41 PM on 07 Dec 2007,
  • FR wrote:

Hey Robert, keep up the excellent reporting on this quagmire - don't let the head-in-the-sand brigade blame you for what amounts to incompetent leadership by NR Directors, The FSA, The BoE and especially Mr Darlink!

Christ, if we had a few more like you in Gov't, the merde may not be flying so widely!

  • 20.
  • At 12:50 PM on 07 Dec 2007,
  • James wrote:

So Robert - who has the £25billion plus now?

We, as taxpayers, are now bearing the risk of bailing out the original creditors of Northern Rock. Do we have any rights to know who the ultimate beneficiaries of our government's largesse are?

  • 21.
  • At 01:16 PM on 07 Dec 2007,
  • Aer wrote:

Robert Preston writes that(if the Chancellor thinks the Rock is a going concern) 'he should back Olivant's plan, since the Rock's shareholders, its owners, are hsouting very loudly that they like it.'

More precisely, Rock's MANAGEMENT (and lead hedge fund investor) like Olivant's plan - and guess why? It offers more incentives for management that Virgin's.

So why should the Chanceller back Olivant's plan because management (ok the Board) and the lead hedge fund investor (again you have to ask why) like Olivant's plan best?

Frankly, the interests of management and the lead hedge fund investor (a.k.a. "owners") may be at odds with the interests of tax payers behind the £25 billion loan.

Note that if Virgin don't pay back as promised that would hurt the Virgin brand - whereas Olivant's interests (given the injection) are purely about making the equity work (which implies finding a way NOT to pay back as promised.)

Take note!

Aer

  • 22.
  • At 01:18 PM on 07 Dec 2007,
  • Gavin wrote:

Administration looks like a perfectly reasonable option.

It is pretty obvious that NR's business model was different from many other lenders.

Just because one failed model causes a bank to go into administration doesn't suggest the whole banking system is broken.

In fact proping up a lame duck with state aid is just a polictical and dangerous maneouver.

  • 23.
  • At 01:18 PM on 07 Dec 2007,
  • J Midgley wrote:

In case nobody above posted the naive and obvious question: "Why don't Olivant and Virgin get together, pay off the £25 billion and change the name of the bank to simply 'Rock'". Share the burden and share the profits.

Just a silly one, obviously they would both prefer to struggle with a mountain of debt on their own.

  • 24.
  • At 01:25 PM on 07 Dec 2007,
  • Loopy wrote:

To no.18

Go Mark I couldn't have said that better myself.

  • 25.
  • At 02:06 PM on 07 Dec 2007,
  • Al wrote:

If the governor of the bank of England and the chancellor really believed that they could resovle this within months, they should resign. You can't put that kind of money into this kind of situation unless you are in it for the long term. Nationalisation of our 5th largest bank is not an option. Even in a bouyant, happy credit market, a takover could not happen or be agreed in this timescale. Face facts, there is a credit crunch, there isn't enough money left in the world for another company to borrow 25bn to pay back the back of england, that's why the offers on the table require funds through equity not loans. If its a going concern, and it has a history of servicing these large loans and still generating profit and cash, let the bank of England remain as its money market stand in, for however long, and when the money markets are back, farm the loans back out. Bank of England gets its money back in time plus interest, and more players will be able to access the money markets, then being able to offer more stable funding solutions. Its going to take time, accept it. Don't rush to sell/break up/nationalise a going concern. Its not right.

  • 26.
  • At 02:14 PM on 07 Dec 2007,
  • s wrote:

MR Mills,
Re the £25b on loan created out of thin air.When new money is created ,leaving aside the other considerations for the moment, what happens is in effect every other pound in existence is correspondingly worth less by whatever is the fractional relationship between £25b and the worlds store of pound notes. The holders of same may ,or may not be tax payers ,but they have all been devalued to pay for this.

I see absolutely no real problem with taking down NR signs and repackaging this lot from day 1 as NSI a 'new' presence on the high street.
Shareholders ,tough luck lads this is the risk we run by investing in shares. Moreover ,you all have had eons to divest yourself out of this. You chose not to ,but to get locked in at current values which are to all intents and purposes NIL. Pay up and shut up with dignity.
If other bidders can't put the capital proposed firmly on the table with unambiguity then send them away and don't chase the probverbial carrot.

  • 27.
  • At 02:52 PM on 07 Dec 2007,
  • Anonymous wrote:

Enough is enough. We are so sick of listening to the lies, half truths and totally bogus made up stories. The staff who work at NR, all happen to be tax-payers. We have worked damn hard all year and even harder over the last few months. The BBC sensationilised this story and made it worse for every single last member of the workforce. Good people are stressed with the knowldege by the start of next year there may not be a NR. A lot of us are the main wage earners in a family, we have kids, christmas is coming. Why do we not deserve a bonus? a pay rise? there's hell on that the civil servants have gone on strike, the postal workers have been on strike how many times? And as for the Christmas bonus, 200 before tax plus a 4% pay rise next year. Great, but the odds are that we won't have jobs so what good is that going to do us. There are conditions connected to any extra payments. Research should be done before reporting.

  • 28.
  • At 02:55 PM on 07 Dec 2007,
  • John Gulland wrote:

If Mr Mills (comment 16) is so worried about jobs in the N.E., then maybe he should stay out of the Jazz Cafe

  • 29.
  • At 02:55 PM on 07 Dec 2007,
  • Dave Smith wrote:

mre #6

Obviously no idea of how the Labour system works up here. D Henderson MP is already saying "if it wasnt for the government the NR savers would have lost their money" He is looking after his seat.

Of course the North pays taxes but they do look to the Labour party for handouts.

  • 30.
  • At 03:23 PM on 07 Dec 2007,
  • Jamie wrote:

"The Treasury had wanted to make a decision on the Rock’s future by mid December – which in reality means by the end of next week."
What a smug little column this is.

  • 31.
  • At 03:26 PM on 07 Dec 2007,
  • Paul wrote:

Well said Mark (#18). The posturing and manoeuvering by the various parts of that finance system, attempting to steal an advantage - any advantage - from the situation makes me sick

That industry has generated this crisis. It is the industry that took a method that was evolved for businesses to acquire funds to build companies - companies that produced things that people wanted or provided services people needed - and turned it into a casino.

A casino moreover where the dice are loaded, the decks are rigged and the wheels are out of balance - and all the odds are stacked against those outside the charmed circle.

They are the ones that need to suffer the consequences (there's more than one IFA and managing director that I'd like to see in the dole queue) not the 'poor bloody infantry' again.

  • 32.
  • At 03:37 PM on 07 Dec 2007,
  • Ian wrote:

Mark, post 18 if you click on the BBC weblink in my earlier posting (no. 9) you will see that 28 out of the 30 seats in the north east are held by labour!

As to people from the South I don't live in the South. My mother got shafted, so to speak, and lost her career in aviation engineering when the 1964 -70 labour government decided to buy the F4 Phantom rather than the PSBR1 and lost her job in manufacturing.

My father lost his job, and was moved into forced early retirement, at Peugeot when they moved production to Slovakia when the "New Labour" government did nothing.

Another family member lost most of his savings and his job when Marconi went belly up again with no labour support.

Where were you and your North east tax payer mates then!

I work in Birmingham where thousands of people who for generations saw themselves as labour supporters felt themselves well and truly let down over MG Rover where the labour Government stood idly by and where thousands more at Land Rover and Jaguar expect no support if, and when, one of their factories shut when Ford sell them off.

Pardon me for being cyncial but methinks you doth protest too much.

  • 33.
  • At 04:14 PM on 07 Dec 2007,
  • Dudley George wrote:

Darling is the classic punter who is getting in deeper and deeper.

Only problem, it's yours and my money he is laying down..

  • 34.
  • At 04:18 PM on 07 Dec 2007,
  • Alan wrote:

Spot on S and well said Anonymous, today I bought shares in NRK and am not going to moan if the bank goes down. Instead I am supported a British company which has been sideswiped by the American Motgage disaster, the Government trying to save face and the media as usual kicking the horse, whilst it is trying to not to drown. People may not like Richard Branson but at least he is trying to save a well established British company and hell yes he does want to make a profit, is that not what makes a company viable?

  • 35.
  • At 04:44 PM on 07 Dec 2007,
  • Colin Smith wrote:

"16. G Mills wrote:

Now, I might be completely wrong about this, if so, can someone please explain the real situation?
"

No. You're pretty much spot on. Though much of the 25 billion simply replaced existing loans the bank already had, so it isn't even as inflationary as some make out.

This is the way banking works. You go to a bank with some collateral (house, car, business plan, whatever). The bank creates money for you and lends it to you, secured on the collateral. Then they charge you interest on the money they just created to give to you. This is where 97% of the money in the UK comes from.

That's banking, and it's why inflation is a constant problem.

Of course. As has been pointed out. Any other business in the UK would have been allowed to fail, why should the banks get special treatment?

  • 36.
  • At 04:44 PM on 07 Dec 2007,
  • Andy wrote:

James, you ask who has the 25 billion.

Well, you need look no further than the people who pass you in the street. 15 billion has been withdrawn by members of the public - had they not made these withdrawals, then NR would have borrowed less than 10 billion, would still have a share price of £6, would probably be half way to paying off what they have borrowed and their reputation would still be intact.

Had this been done quietly, they'd have borrowed 5 billion or so, (as some corporate loans would have just rolled over) and would be chugging along nicely.

And everyone knows this.

Looking forward to the next edition of "Peston Picks (on the Rock)".

Close the branches stop lending money keep taking the repaymentsand slowly put the dead dog to sleep

  • 38.
  • At 05:39 PM on 07 Dec 2007,
  • Mark wrote:

Ian #32

At no point have I said that the government should have stepped in to save NR (the FSA should have stepped in years ago before this all happened but as usual the city were happy with NR because it was making huge profits so did nothing).

My point is about people saying that Labour only got involved to save Northern voters. Garbage. If you were following the story you would know that money started to flood out of the country when the run on NR started. Other nations were losing their trust in the British banking system so took their money out of London. Money services is what the UK does now so a threat to that is a serious problem.

There is a big difference between MG Rover and NR. MG Rover produced products that not enough people wanted to buy. NR was very profitable until the credit crunch.

By the way, the North East doesn't want hand outs. It wants good jobs.

  • 39.
  • At 05:48 PM on 07 Dec 2007,
  • robert marshall wrote:

The problem with Alastair Darling taking Northern Rock into Administration is that he hasn't a clue how to run anything so it would only cause a greater mess.
NR screwed up badly and if order is to prevail then there is only one choice to recoup fully the damage already in place and the money H M Treasury has "lent" the company. Close it down.
Savers money is protected anyway so they have no fear and shareholers will have to come to the conclusions that they backed a loser and get zero however unpleasant that may sound. WIth shgares it always has been caveat emptor and nothing can change that.
To believe that Virgin will sort out the problem is laughable and no one in their right minds ouold honestly assume Branson will have anything to do with it, save smile to the cameras. He has got away with it too many times but banking is well out of his league.
In the name of sanity which seems to have been lost along the way, let this mess be adressed before Xmas 2007 and let us move on.
Then, most importantly let the knives of attrition come out for Darling and McArthy at the FSA who are clearly lost as to what solvency means.
If they last any more time in their jobs, then it is clear our regulatory system and what is left of our reputation will have failed abysmally and fears for the UK being classified as a banana republic will come to fruition.
These ywo key people have allowed the biggest cock up to take place in 140 years and no courtesy shoudl be extecned to them a day more than necessary. Further they should go without any bonus for loss of office or any upward move to the Lords. They have shown a level of incompetance which beggars belief, and which any company director would be banned for life from ever holding their position in office again. Yes but silly me,I forgot this is the Labour Government and the FSA and they don't play by the rules they believe they are above them.
At the time of year when people turn religious I pray that sanity will prevail and we will stop defending indefensible actions by people put in a position of trust and responsibility. Too much damage has been done to turn the other cheek and it has to stop now!

  • 40.
  • At 06:18 PM on 07 Dec 2007,
  • Gavin wrote:

In 2006 NR raised £10Bn by Securitisation.

In H1 2007 they raised £5Bn... and would presumeably have gone on to raise the other £5Bn in H2 2007... but...

The world has changed, it is no longer so easy to raise funds via these means and hence the need to fall back to cash funding either interbank or from the BoE.

The credit crunch means that chugging along based on raising funds via securitisation is more challenging, maybe impossible.

Hey Guvnor... Wanna buy some Mortgage Backed Securities?

  • 41.
  • At 07:39 PM on 07 Dec 2007,
  • AD wrote:

Hi Robert,

I'm sure(ish) BBC pays you to cover all financial stories, not just Northern Rock. If you cannot see beyond Northern Rock, I suggest you take a well earned break and come back fresh in the new year with some new stories. It's time to let go off Northern Rock.

Regards,

AD

  • 42.
  • At 09:18 PM on 07 Dec 2007,
  • M.Ackem wrote:

An official from NR was at the BoE earlier this week (as it the current arrangement).

During discussions with BoE officials, they expressed their astonishment at how the BBC had 'screwed' Northern Rock.

While they accepted that the wholsesale funding issue was due to the global credit crunch and NR's business model, they put the blame for the retail run FIRMLY AT THE DOOR OF THE BBC AND SPECIFICALLY ROBERT PESTON.

As #36 states, had there been no retail run, the Rock would have borrowed @ £5bn and would now be 'chugging along nicely.

Time to fall on the old sword Peston ?

  • 43.
  • At 09:37 PM on 07 Dec 2007,
  • Kb wrote:

FAO Poster number 1

Telling others how clever they are when basic spelling and punctuation are beyond you... Find a dictionary and look up "irony"

  • 44.
  • At 11:35 AM on 08 Dec 2007,
  • HarleyBren wrote:

Lending Northern Rock some money is nowhere near as bad as Mr Peston being given money for writing total rubbish ! The BBC is paid for by taxpayers ! At least 10 billion pounds of this loan is the fault of Mr Peston and the his original hysterical "reporting". Mr Peston is far more at fault over the current troubles than the directors ever were.

  • 45.
  • At 12:24 PM on 08 Dec 2007,
  • Mark wrote:

What people need to remember is that Northern Rock employ 6000+ people in the north east regin. The main aim of the board of NR and the government at the moment should be to ensure these jobs are safe.

Northern Rock is a good business it has a large and health mortgage book and has massive potential to make profit. Over the past few years we have seen the company grow at an incredible rate.

Yes they have had many problems recently, however this is because of the global crisis, meaning there funding dried up. If the company once again had the funding to trade normally, it would once again start to turn good profit, grow, and repay its debts.

The press, including the BBC (and defiantly Robert Preston who has had more than a few unfair comments to pass about NR) have only made matters worse. When you write these articles, twisting the words of Northern Rock spokes people and blurring the line between fact and fiction, surely you must be aware you are making a bad situation worse.

The NR board of directs, the BoE, the FSA and the Alistor Darling all have a lot to answer for, due to the problems of Northern Rock, but the people who have caused the most trouble and panic for the bank is the press!

If any company or group has the money to rescue Northern Rock, then the government should give it full support!

  • 46.
  • At 01:32 PM on 08 Dec 2007,
  • G wrote:

Hi Bob, its me again. If your not going to stop your one sided attack on NR, I thought I'd give you a challenge for your next piece. We'll call it Peston plays god. What happens is members of your regular rock reading nonsense can send in five really "heavy" words and you can try to include them in your next article. I'll start with Sensationalism, biased, glamorised, histerical and numpty. I think you may be able to insert my final word in between Robert and Preston but thats all the help your gonna get. Bet you dont post mine again.

These blog comments are rather personal ( probably you bought shares at three pounds )... I think Mr Peston does an excellent job by updating his blog regularly, offering a rare opinion from the BBC and inspiring some debate. More of the same please!

  • 48.
  • At 03:10 PM on 08 Dec 2007,
  • G wrote:

To 47 personal? yer damn right its personal. Personal to at least 5500 people working in the North East, O'h and before you say anything, I'm from Bham with no interest in NR whatsoever. I just happen to see the human aspect to this which up until now bobby boy has failed to place any real significance on. So Bobby "offers a rare opinion"? One sided, biased and destructive I say. Go read his last 47 trillion pops at NR. You think this is unbiased reporting? As BBC's business editor he has reported on little else.

  • 49.
  • At 05:17 PM on 08 Dec 2007,
  • bears all wrote:

I'm astonished by the sheer animosity on this blog, not just towards Mr Peston but towards other posters too, much of it by the semi-literate (there's a difference between animosity and facts).

The reality is that the NR story would have broken anyway had Peston not done so, and to blame him is to shoot the messenger. The real culprits are firstly the NR board, who were greedy and built a business model which was imprudent, and secondly the government, who have poured money into NR because that seemed like the best way to avoid medium-term political embarrassment, but who now face far greater problems as the prospect of a rescue deal recedes.

This is a big story with a long way to run and with major implications for the government, the Labour party, the city and the banking system in the UK. To accuse Peston of prejudice because he keeps on covering the story is almost unbelievably shortsighted.

  • 50.
  • At 06:53 PM on 08 Dec 2007,
  • HarleyBren wrote:

The worst thing that may come out of this whole Northern Rock debate is that the selfish and narrow minded Mr Peston may one day be able to say he was right about something. He has tried almost everything he can attempt to do to ruin the name of a great company, its directors, workers, shareholders and customers ! I have no personal interest in Northern Rock and don't live or work in the north but I was disgusted by the original ridiculous "news" coverage started by Mr Peston.
At least half the present loans by the bank are a direct result of his sensational, inaccurate views and opinions. The damage that he started and forever wants to make worse is unforgiveable ! Shame on Peston and the BBC !

  • 51.
  • At 07:40 PM on 08 Dec 2007,
  • Rude Boy wrote:

NR is no longer a bank or building society. It hasn’t been for a while.
Its business model is that of a mortgage broker, arranging for its customers to get funds from whoever or whatever it itself can borrow from.
No problem as long as it can borrow. Now it cannot except from the BoE.
If NR had been a small mortgage broker, and nobody would lend to it, it would have been simply wound up. Its loan book would have been bought up by some other brokers or banks.
However it had been allowed to grow so large that when it got into trouble the rest of the system is in trouble.
The idea of it being a profitable venture is laughable.
Profitable ventures don’t need to borrow from the lender of last resort.
Furthermore by providing cheap loans it helped pump up the UK housing market. It is ironic that the UK government, who should have been keeping an eye on the NR behaviour, now look to be holding the baby and we will all end up paying.
I bet that as NR pays off loans, as they become due, with BoE money then those lenders give a sigh of relief. They are the ones who gain from this episode. The rest of us are losers.

  • 52.
  • At 09:37 PM on 08 Dec 2007,
  • Edmund wrote:

What if one million people bought £5000 worth of Northern Rock shares and invested £30,000 in a Northern Rock account(guaranteed by the bank of England)
1.Would the shares increase to £11.00.again?
2.The workers have guaranteed jobs.
3.The taxpayers get a break from the problem.
4.The Bank of England regains its reputation.
5.The Government are seen to be the party to handle yet another problem.
The profit for the one million investors would be £50,000 each.
We all know Northern Rock can be worth even more than £11.00 so why not get together and show the world,
BRITS CAN SOLVE THEIR OWN PROBLEMS.

  • 53.
  • At 04:44 PM on 09 Dec 2007,
  • Adrian P wrote:

Nice one Robert, amazing how pyramid-schemers who've lost their money like to blame the messenger (the rest of us who saw that Panorama programme on the 'self-certificating mortgages' scandal in 2006 (main offender N.Rock) sold our shares on the spot!

I'd go further and say N.Rock was a vast balloon blown up with years of Weimar-style rolled over short-term credit loans, and just like the Austrian Credit-Anstalt Bank in 1931 when the music suddenly stopped they (and all of us as taxpayers) found there wasn't a chair to sit down on anymore. And it might not get any better anytime soon as Bush's America, where all this artificially cheap credit has been coming from, is running out of luck financing wars in Iraq and Afghanistan using precisely the same business model, as the debacle over its 'mortgages for crack-heads' spin-off is demonstrating.

As for us tax-payers being plundered to rescue 'labour-voting jobs' in the North East, this is sadly unlikely, it's not in the nature of governments to protect the masses as our votes cost us nothing to cast. But looking after the interests of secret millionaire benefactors is a different story. Perhaps Labour's diversion of billions of tax-payers' money into N.Rock's bankrupt shell has been to bail out their mysterious buy-to-let property tycoon backers? For instance isn't David Abrahams supposedly a 'property developer' based in Newcastle? If this is the reason then at around 10% of the nation's budget (and 5% of GDP) Gordon Brown's Labour Party may have just looted our Treasury on a similar scale to the plunderings of the Nigerian military of the 1980s. Toodle pip.

  • 54.
  • At 06:35 PM on 09 Dec 2007,
  • Harrison wrote:

Some of the comments above seem to blame Roberts reporting for the problems at Northern Rock. These people clearly seem to think that institutions lend to each other purely on what a reporter says at the BBC. The fact is that NRs problems are due to management incompetence and poor regulation. NR became insolvent months ago. The only reason it is still going is because of Mr Darling's largess with our money.

As to the people who say, this isn't real money, it doesn't matter. They are clearly deluded. All money matters. Just because you've got a tab running behind a bar doesn't make the drinks you're having free. The British people will be paying for this for years to come. For that reason and for that reason alone Robert Peston should continue writing about this story.

  • 55.
  • At 07:51 PM on 09 Dec 2007,
  • JW wrote:

NR a 'good business'? (Comment #45) So why are they in such a mess then? Give me a break. And don't blame the messenger or the media in general, it's rather embarrassing (Comments by several disgruntled NR employees)

I've been in IT for over ten years, have gone through three redundancies and face a rather constant threat of being out-priced by some clever chaps in India. The redundancies were due to a sudden drop in demand of the services we provided, hamfisted management or both. Either way, I wouldn't dream of blaming some one else, least of all 'the media' and a single journalist. The government propping up failed businesses wouldn't happen in IT or manufacturing, so I cannot understand why NR should get preferential treatment.

Regarding the teary eyed comment about by a NR employee about poor xmas bonuses: As with most things in life, you need to pick yourself up, assess the situation, and move on. There will always be jobs in IT, and probably even more so in banking and finance.

Just sitting back and being a complacent corporate wage-slave will bite you in the end. Everyone's lot in life is their own responsibility, regardless of who you choose to blame. If you want financial stability, go back to school and become a plumber.

  • 56.
  • At 08:24 PM on 09 Dec 2007,
  • John Constable wrote:

This is probably the biggest story (so far) of Robert Pestons life so it is very unreasonable of some posters to not expect Peston to follow it up as it develops.

This is classic 'shoot the messenger' stuff but people do become somewhat irrational if they or their relatives/friends jobs are being threatened, as must be the case now at NR.

I do not usually read the Daily Mail, but I made an exception last week to read Tom Bowers piece on Richard Branson.

Conclusion - even more of a 'spiv' than I'd previously thought.

Surely there is no way, after Geoffrey Robinson, that they (HMG) 'are going to let the spivs in again'?

  • 57.
  • At 09:27 PM on 09 Dec 2007,
  • Andy wrote:

Wow. It is impressive how many people think Mr Preston single-handedly brought the reputation of the British Banking system to his knees. It is not the fault of the NR management for not considering the evident, yet fatal flaw in their business model. Apparently, some think that Preston should stop reporting on the biggest financial crisis to hit the UK for 100 years.

I find it ironic how some people here claim that the government should feul their gambling addiction (yes, there is no gaurentee you will profit from investment). I wonder what their views would be to cash handouts at the casino doors?

Theres a phrase these people might want to listen to: s*it happens. Get over it. You lost, move on. Yes, maybe Preston broke the story, but if he didnt, who would have. You all seem to forget it is an EU directive that forces the BoE to declare loans made...so it would have come out at somepoint.

Somepeople don't see the consequences of NRs collapse. If NR collapses, who would wish to invest (i.e. lend to) British businesses? Would they charge more to reflect the greater percieved risk (i.e. higher interest rates). NRs propping up is bad, but really, think what the alternative would be (and believe me, the shareholder would have nothing if it went bust as well).

One last thought...wasn't it the shareholders who elect the board?? And how much have shareholders taken in dividends that could have been used to prevent this fiasco?? (Bearing in mind the run is what constitutes most of NRs BOE borrowing)

  • 58.
  • At 09:43 PM on 09 Dec 2007,
  • FR wrote:

To #52 - erm...I don't happen to have £35000 lying around at the mo.

Have you recently been discharged from a happy-clappy institution?

  • 59.
  • At 12:07 AM on 10 Dec 2007,
  • John March wrote:

Richard,do you ever talk about anything other than the Northern Rock? Is nothing else happening in the city?

  • 60.
  • At 09:13 AM on 10 Dec 2007,
  • Andy wrote:

A few points
1) The BoE loan is inflationary. However it is occuring at a time when all of the other banks are reducing their money supply (that very essence of the credit crunch for those of you that dont quite get it), so the net effect is to have a small impact on the deflationary trend in the market.
2) To the best of my knowledge the reduction in the BoE base rate does not affect the terms of the loan to NR.
3) The presure on the BoE to recoup the loan at high speed in adverse market conditions is purely political and is as flawed a business model as anything the directors of NR have taken on.
4) When you see companies like UBS writing of $10b of value, you see why the lending has dried up. Its not because the lenders thought that NR was overly exposed to the sub prime market, its because the lenders were overly exposed to the sub prime market and needed their cash back to fund their own losses. NR was overly exposed to the lenders.
5) Short term the Rock is a busted flush, but with adequate funding in place over the next 3 years it will be able to shift its gearing and be a profiable business again. Those stating that the Chancellor should ignore the advise and wishes of the shareholders are stupid, because right now the objectives of both are very much aligned. To get the debt to the BoE paid off and get out of the politics that surround it.
6) If the politics are bad now, then nationalisation is a road to ruin. First off, this shouldn't be an option unless the treasury are pretty convinced that this is a viable business. If it is, then to take it away from its current owners without recompense will lead to protracted and costly legal wrangling. A government body in direct competition with the world banking industry is probably not a recipe for success, and the potential conflicts of interest in terms of regulation and legislation are huge.
7)The naive question about combining the two bids - first off, if you're only getting half of what you are buying - you will only want to pay half the price. Secondly, in order to make the bids, Olivant and Virgin are both borrowing the money to pay off the debt (irony at its highest) and there isn't £25bn out there to lend to the Rock (that's kind of the whole issue here).

  • 61.
  • At 11:29 AM on 10 Dec 2007,
  • A Londoner wrote:

Despite the sensationalist reporting of a non-issue initiated by the blogger RP, the primary cause of a run on NR, we kept our money in.

We got a letter telling us that all re-deposits would be credited the "lost" interest, we kept our money in.

We got a letter telling us that as re-depositor we'd get a bonus if we keep our money in till March.

We are going now, not because of RP, and not because NR will fail - but because NR assumed we went with the pied piper or the lemmings.

We'd like recognition for staying in, and not a bonus for responding to hysterical, biased and frankly wrong reporting.

  • 62.
  • At 12:30 PM on 10 Dec 2007,
  • Ray wrote:

When this whole Northern Rock debacle first emerged I was in the minority when I opined that a market failure cannot be corrected through political action (or inaction for that matter).

I still believe that the BoE should not have pumped money into the Rock cause at that point in time the true extent of the troubles at the Bank were not known. Conversely, hitherto, the impact of the credit crunch on the wider economy is still not known. The consumer side of the economy is still anxious and uncertain about the long term outlook and how this will impact the wallet.

But that is for another day..now I just feel that Journalists should have actually had some sort of moratorium with the Rock where this issue would have been resolved behind closed doors i.e. a silent takeover would have been orchestrated and executed without the whole saga playing out in the media. I believe this was what Marvin King sought as a solution initially. He came under undue pressure, not of a financial nature but rather of the political kind but his job is not to respond (read:react) to the political whims of short term thinking.


But now I am paying to hold up a company that upto a few months ago was of no relevance to me whatsoever...safe for the fact that they sponsor Newcastle United, who denied my team (Arsenal) all 3 points last week..so why is this in my interest again?

Northern Rock has been advised by its lawyers that it’s in the “zone of liquidation”.

Do we have a direct quote from someone, or some evidence at all? No, we don't.

This is some of the most ridiculous journalism I have ever seen.

Which sounds scary, but it’s really just a statement of the bloomin’ obvious, in that the Rock cannot fund its operations from normal commercial sources and is in hock to the taxpayers to the tune of £25.5bn.

No it isn't, and repeating that over and over again will not miraculously make it come true.

  • 64.
  • At 01:51 PM on 10 Dec 2007,
  • John Constable wrote:

More than one person that I've spoken to about NR say that if this bank was located 'down south' it would have been allowed to go bust.

I think there is a grain of truth in that statement which reflects a lack of political unity in England i.e. a kind of North/South polarisation.

Not healthy.

  • 65.
  • At 02:42 PM on 10 Dec 2007,
  • Chris wrote:

So, am I right to feel put out that despite the B of E's central rate cut, I'll likely not save a penny off my monthly mortgage payment to NR from this or any future cut in the central rate?

Will NR cut its lending rate? I doubt it. Those additional monthly interest payments gleaned from its customers will undoubtedly go some way towards meeting the B of E's penal interest charges.

Every lender of course has the right not to move its interest rate. Indeed many are sitting tight rather than cutting their base rate presently. However, NR has become quite different to other lenders given that its main creditor is also the entity which sets central lending rates and therefore holds huge influence over NR's net interest margins.

Isn't there a conflict of interest somewhere in there? And who will decide? The FSA - surely they can't be seen to be independent in reviewing the Government's and B of E's interests influence in the matter?

What a mess.

  • 66.
  • At 03:38 PM on 10 Dec 2007,
  • getting concerned wrote:


The words of that great fraudster Robert Maxwell (ex Labour MP etc) are coming to mind here;
"If you owe the bank £1000, they've got you. If you owe the bank £1 million,you've got them!! ( because they can't afford to let you go bust!!)

Well Northern Crock owe the taxpayer £25+ billion........so they've got us!!

This latest statement from "the NR lawyers" was just rattling the governments cage to tell them that they'll be needing some more money soon......to keep this "Ship of Fools" afloat........till this elusive takeover occurs.....and then maybe we'll get some of it back.....or maybe not?

I seem to remember Richard Branson putting a bid in to run the National Lottery.........but when his finances were scrutinised, they didn't quite add up!

As for all this drivel about not reporting this....don't be stupid, this is one of the most important stories at the moment.

  • 67.
  • At 06:38 PM on 10 Dec 2007,
  • Gary wrote:

I work for Northern Rock and have been reading the posts on the issue since it began. I don't think I'm a financial wizard but I and others at NR saw problems coming months before it did. I personally can't see how any of the bids can work without significant redundancies, the scale of the business has to be downsized to reduce costs. At the moment there a lot of people with nothing to do (obvious if your not completing mortgages). One other point the service centre in cardiff is definitely not in the north east and neither are quite a few of the branches. I am concerned for my own financial postion but to be honest I think NR is dead in the water and that is down to Applegarth in my book

  • 68.
  • At 07:35 PM on 10 Dec 2007,
  • Yummy Carol Kirkwood wrote:

Errr... people, if a company CAN SERVICE ITS DEBTS, how can you conclude that it is bust/bankrupt/insolvent/<insert other inflammatory term her>

She's a witch!!! Burn her!!!

8-)

  • 69.
  • At 07:55 PM on 10 Dec 2007,
  • Rude Boy wrote:

To segedunum .
What part of the statement
"in hock to the taxpayers to the tune of £25.5bn."
do you take issue with?
The amount or taxpayers?

As I understand it the government i.e. - we the taxpayers - instructed the BoE to loan money to NR so that other loans could be repaid as they became due.

Money has changed hands.
What have I missed?

Are you saying that only UK depositors or other money created by the BoE is being repaid with BoE money?


  • 70.
  • At 08:11 PM on 10 Dec 2007,
  • Piero wrote:

I am becoming tired of the comments attacking Robert Peston.

Mr Peston's job is to report on important business stories. There is no more impotant business story than Northern Rock. Do you think he and the BBC should ignore this story? What would you have said when the crisis came to a head and the public had not been informed?

Institutions lending to NR ceased extending credit to it. In these circumstances, it was rational for the depositors, who are also lenders, to withdraw their deposits. Would it have been better if they did not know the risks on which they were lending? Remember that deposits were a minority source of credit for NR. This is not a crisis created by reporting. It is a crisis created by the failure of NR (and the FSA) to make contingency plans for a lack of liquidity.

Reporting the facts is not an attack on Northern Rock. Nor is the reporting biased or one-sided. (What is the other side?) And yes, NR is 'in hock' to the taxpayer. We have lent NR a stupendous amount of money, something on the scale of the annual defence budget.

This is a business story on a scale greater than any I can remember. I don't think that even the secondary banking crisis of the early seventies was a matter of such serious public concern. Its potential effects are cataclysmic. This is our money at stake.

One poster thinks that a £25,000 fraud on a life insurance company is a more important story. That's out by a factor of a million.

I don't know whether these people are fools or have a hidden agenda but it is notable that many of them seem to be both functionally and financially illiterate.

I am an unequivocal admirer of Robert Peston. His reporting is of an extraordinarily high standard and without it, there are many important matters of great public interest that we simply would not know about.

  • 71.
  • At 11:59 PM on 10 Dec 2007,
  • John Constable wrote:

It is interesting to see that an NR employee writing on this forum blames Applegarth.

Similarly, a while back, the demise of Equitable Life was pinned to to one individual, Roy Ransom.

I wonder.

How much blame can be put on a single individual in an organisation?

Even if that individual is at the top of the notional tree, unless they are a dictator, there must be some sort of collective responsibility.

In both of those cases, I believe that the 'blame' must be shared err, more equitably.

Even Gordon Brown must take a percentage share of the blame for the NR debacle, as he set up the tri-partite system, which at its first real test, was found sadly lacking.

  • 72.
  • At 01:40 PM on 11 Dec 2007,
  • getting concerned wrote:


Errr....Yummy Carol Kirkwood (Post 68),

That's just it, NR can't service it's debts (The taxpayer is having to do it for them !!)

It's all rather simple really.

  • 73.
  • At 10:48 PM on 11 Dec 2007,
  • Rude Boy wrote:

The blame game : 71

The North East business ethos could be to blame for NR's failure.
60% or so of the North's economy is dependent on public spending. Obviously some of the public sector jobs are essential and some low paid too.
However the development agencies are being pushed by the government to grow new jobs. How do they do that? By giving grants to universities etc. It does not seem to matter that the jobs so created are grant dependent since the grants are rolled over year on year.
The Northern Way is just the latest of a long line of grant support schemes.
No wonder that the NR executives were thinking that life was good and would carry on for ever. Looking around them they could see publicly funded buildings springing up occupied by publicly funded employees that would love to take out mortgages.
This does not of course bode well for the country in the future.
The jobs have been created without any requirement of economic competition. Coal mining has been replaced by grant mining.
Some predict we are due for an economic turn down where we will have to rely on our skills to compete internationally to earn our way. What skills? Filling in grant forms?

  • 74.
  • At 10:09 AM on 12 Dec 2007,
  • Yummy Carol Kirkwood wrote:

Errr... getting concerned (Post 69)

Servicing a debt means making the repayments, in the case of Northern Rock the interest charged by the Bank of England. It's problem is not SERVICING the debt but OBTAINING the funds in the first place (which is why the BofE had to step in). Similarly, a bank won't demand full repayment of a mortgage while the borrower is making the monthly repayments, will they now?

Rocket science it ain't.

  • 75.
  • At 11:37 AM on 12 Dec 2007,
  • Trevor Wood wrote:

What we need to remember is that when lending NR the £25.5Bn, the BoE took adequate security (probably £35 - £40Bn of mortgages). Unless it is being suggested that the NR loan book is less robust than, say, Halifax or Nationwide, the taxpayer is in no danger at all.

Looking forward to a possible takeeover, it appears that the above BoE loans are proving a formidable obstacle. Why then dooesn't NR ddownsize a little by selling this part of the loan book and then repay the BoE. We then not need a takeover a all!

As I said, it all depends on the quality of the loan book. Are the loans perforrming within industry accepted parameters? If that is so, problem solved, since NR will have no difficulty selling some £30Bn of its mortgages.

Then the likes of Branson can be shown the door and hopefully NR can carry on its business.

Simplistic? Certainly, but at least worth considering. I would like to think that the BoE, as part of a contingency plan, had been putting out feelers to other big mortgage lenders about such a sale.

After all,this entire crisis is not about NR's mortgage business,rather its financing of same. Since it has overstretched itself on the finance side, a little downsizing on the asset side is called for.

  • 76.
  • At 03:58 PM on 12 Dec 2007,
  • getting concerned wrote:

Err.....Yummy Carol Kirkwood (Post 74),
I'm sure that there are one or two people in the bankruptcy courts claiming it's not their fault at all, it's all the fault of "Capital One", because they wouldn't give them a loan to pay off their Barclaycard!
This is exactly the same but millions of times bigger.

The stage NR is at now is having to ask the BoE to borrow some more money so that they can pay them the interest that they are due.

  • 77.
  • At 07:04 PM on 12 Dec 2007,
  • Mike Barnfather wrote:

Hey Peston

Hope your mortgage goes through the roof and the value of your house goes through the floor. I guess your reliable informers are laughing at you now that so many big bank want the same founds as Norther Rock. To get it wrong will in future have to be called 'Doing a Peston'.

Long live NORTHERN ROCK

  • 78.
  • At 09:48 PM on 12 Dec 2007,
  • Gary wrote:

71.

If you had worked for the egotistical maniac that is Adam Applegarth then you would blame him too. This man consistently accepted the praise for steering NR to making profit through his wonderful strategy. While not being officially the man at the top make no mistake he called the shots, that is until everything went wrong and then miraculously he decided it wasn't his fault and wasn't his idea after all it was 'their' idea. If he'd an ounce of self respect he would have resigned at the beginning but again his arrogance wouldn't let him.

  • 79.
  • At 08:35 AM on 13 Dec 2007,
  • Yummy Carol Kirkwood wrote:

Errr... getting concerned (Post 76)

People with large credit card debt have borrowed money and SPENT IT (without any assets of worth to show for it).

Northern Rock has borrowed money and LENT IT (with asset-backed securities, aka mortgages, to show for it).

Why are you having such a problem with this???

And no, Northern Rock are NOT borrowing money to pay their interest bill as you claim. But don't let the facts get in the way of your prejudice.

As I understand it the government i.e. - we the taxpayers - instructed the BoE to loan money to NR so that other loans could be repaid as they became due.

BofE money is not taxpayer's money, and it is for the specific paying off of existing loans. Now the joint central bank thing........that's a different ball game.

Money has changed hands. What have I missed?

In reality, no real money has changed hands. This is what makes this so difficult for the general public and for poor people like Vince Cable advocating nationalisation.

  • 81.
  • At 11:35 AM on 13 Dec 2007,
  • JJ wrote:

question for yummy whatnot

I'm confused with all these bold bits in your posts!

Are you saying that Northern Rock would be fine without the BofE loans?

Isn't the bottom line that Northern Rock would have ceased trading without these loans?

  • 82.
  • At 07:29 PM on 17 Dec 2007,
  • Yummy Carol Kirkwood wrote:

Re #81 JJ


No, I'm not saying that Northern Rock would be fine without the BofE loans. (Rather a bizarre question for you to ask?)

And yes, I expect Northern Rock would have ceased trading without the BofE loans, in much the same way that the vast majority of companies in this country would be forced to cease trading without the loans and debt they employ to fund their business. The fact that a company needs funds to operate does not make it bankrupt or insolvent (they borrow to invest, with the return on that investment higher than the borrowing cost = profit), but a number of people seem to have failed to grasp this fact.

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