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jon11111

Listed below are comments made by jon11111 between Tuesday, 5th August 2008 and Saturday, 30th August 2008.

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Treasury injects £3bn into Rock 00:54am on 30 Aug 2008 For an alternative example of how to deal with a troubled bank google "Roskilde". The Danish central bank is once again demonstrating their knack for running down troubled financial institutions, repeating the same format as used for Varde bank 15 years ago.

After failing to sell Roskilde its assets and senior liabilities have been transferred to a new banking entity, whilst the equity capital and junior debt capital has been wiped out although these securites will have a claim in the unlikely event that there is residual value in the newly created bank. Interesting also is the penalty interest rate being charged of base rate + 4.85% unlike the poultry uncommerical ratio of base +1% charged by the BoE. A far better deal for the Danish Taxpayer in terms of return on lent funds and risk exposure. Alistair Darling should be ashamed of his approach of bottling on tough decisions and instead pouring taxpayers money as fresh equity capital into northern rock with the hope that he can bury the bad news for good at the nations expense.
Treasury injects £3bn into Rock 00:23am on 06 Aug 2008 I want to repeat my main point in comment 17. The government is acting in an economically suboptimal manner and not in the financial interests of the taxpayer. The current BoE loans are at the senior level and benefit from a cushion of junior debt of over 1 bn gbp. If a bank faces difficulties its junior debt (consisting of Tier 1 and 2 capital) takes losses ahead of senior debt. The governement has already avoided the commercial decision of suspending deferrable coupon payments on junior debt, and now instead of using this debt to protect taxpayers financial interests it is voluntarily subordinating itself in the capital structure by accepting equity for some of its senior obligations.

This is a political decision based on the hope that a large equity injection is likely to minimize negative headlines from northern rock in the future, as opposed to a transaction seeking the best economics for the taxpayer.

The NR shambles continues. NR should have been run down in a commerically reasonable manner - eg, good bank/bad bank format. There would have been very little difference to the current scenario - NR downsizing its mortgage bank putting stress on other lenders, NR laying off staff, - except perhaps NR would not be competeting for deposits at other banks expense!
Treasury injects £3bn into Rock 09:29am on 05 Aug 2008 I am shocked that the government is now subordinating themselves to exisiting subordinated debt. Northern Rock is clearly a bank in run off and as such should not have a capital injection but be run down with losses taken at the junior bondholder level. Instead the government has chosen a face saving measure of quietly taking the first losses as the mortgage book goes bad. A terrible business transaction for the taxpayer.

Our banking system will never work properly if it is unacceptable for bondholders to take losses - the point of junior debt is to provide capital exactly for this kind of situation.

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