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Treasury injects £3bn into Rock

Robert Peston | 07:31 UK time, Tuesday, 5 August 2008

The government is to inject up to £3bn of new equity capital into Northern Rock.

Northern RockOr to put it another way, the nationalised bank is having a mega rights issue that taps its one shareholder.

The way to see it is as a tweaking by the government of its promise that all those taxpayer loans would be repaid.

It's now saying, in essence, that the final £3bn - plus £400m of preference shares that will also be converted into ordinary capital - will only be repaid if the bank is eventually sold and denationalised at a profit.

And it's anyone's guess, in the current ghastly climate for banks,.whether that will happen.

If Vince Cable, the LibDem Treasury spokesman, doesn't make hay out of this, he's asleep.

The reasons the Rock needs the capital are straightforward.

Its ratio of capital to assets - which was about 5% on the Tier One measure - is well below the industry average.

Most British banks - following their substantial capital-raising exercises - have Tier One ratios between 8 and 12%.

And the City watchdog, the Financial Services Authority, is insisting that Northern Rock be managed on exactly the same basis as other banks. So it too has to raise capital.

That said, £3bn looks massively over the top. On some measures, it looks about double what would need.

But the Treasury is probably being prudent in allocating as much as £3bn, for a couple of reasons.

1) Unlike other banks, Northern Rock has just one shot to recapitalise itself, because any such injection needs state-aid approval by the European Commission, which is typically granted only once.

2) It still has much reorganisation to carry out and - with prospects for the mortgage market looking pretty grim - it's probably as well to secure a bit more capital than it needs immediately.

In that context, it is relevant that the Rock made a loss of £585.4m in the six months to June 30 - and that arrears over three months on residential mortgages at the end of June were more than double as a proportion of loans what they were at December 31.

It's true that this arrears performance is still a tiny bit better than the industry average, but the trend is horribly in the wrong direction - and there are signs of particular strain for homeowners who took out the Rock's notorious Together loans, where the value of the combined mortgage and personal loans are significantly more than the value of the relevant secured properties.

Here's the most politically charged statistic: repossessed homes at the Rock have risen from 2,215 to 3,710 in the six months, or almost 70%.

The government has been urging banks not to repossess the properties of struggling borrowers, if they can possibly avoid doing so. The question therefore is whether the bank it owns, Northern Rock, has been sensitive enough to the problems of hard-pressed families.

The Rock's new capital will come from ceasing for a period the repayment of the giant taxpayer loan made to the Rock. What'll happen is that around £3bn of that will be converted into equity.

So what does it all mean?

Well the £3bn will probably - under our weird public accounting rules - be another £3bn added to the national debt, which the Treasury needs like a hole in the head.

And it will doubtless be seen by the government's critics as £3bn of taxpayers' cash very much at risk of loss.

Whether it is eventually lost, depends on two related factors.

First is when and whether the decline in the housing market is arrested and when prospects for the repayment of mortgages improve.

Second is when and whether investors become bullish about the prospects for banks again. If the government tried to sell the Rock into the private sector right now, the loss would be colossal.


I have been nudged into reconsidering my remarks that the conversion of £3bn of our loan into equity represents a political opportunity for the ubiquitous and often insightful Vince Cable. He, famously, was a longstanding proponent of nationalising the Rock, so if the capital injection is a sign of the nationalisation going a bit pear-shaped, then he can't really put the boot in.

It's more of a political opportunity for the Tories, since they consistently opposed state ownership for the Rock. Although they are a bit hamstrung in the impact they can make, since the shadow chancellor, George Osborne, is on his hols.

In fact the Tories might well ask whether it's appropriate that such a significant policy shift - which puts taxpayers right at the back of the creditors' queue for £3.4bn (the converted loan plus the pref that's being exchanged for ordinary shares) - should have been announced while the Commons is not sitting.


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  • Comment number 1.

    Why does a state-aid injection of capital need approval from the European Commission? You mean we can't do whatever the hell we want with our money?

  • Comment number 2.

    That should pretty much clear up the issue of how much Northern Rock's shareholders deserve to be paid for the shares purchased by the Government. And that's nil.

    And if only there been an executive bonus claw-back system...

  • Comment number 3.


    Don't make this about petty anti European views. This is a global economy. Like or not, we are a member state of the EU. Though we are not part of the Euro zone, our Economy has a major bearing on all of the other European ones, as well a inflationary rates, etc. The question we should be asking is why, after giving these obviously inept idiots £27bn of OUR money, are we giving them another handout? SACK THE LOT OF THEM NOW Alistair.

  • Comment number 4.

    Arrears have gone from 0.45% to 1.18% in 6 months, a 160% increase. if that carries on for another 6 months arrears will be at 3.1%. With £84bn loaned to customers, such an increase in arrears could easily translate into a further £1.6bn loss.

  • Comment number 5.

    Re: #3 simonbanyard

    The question we should be asking is why, after giving these obviously inept idiots ?27bn of OUR money, are we giving them another handout?

    I don't know your level of English comprehension, but the emergency funding provided by the Bank of England was a LOAN.

    And, if you care to read today's news article, you will see that nigh on £10bn of that loan has been repaid in the last 6 months:

    But it also managed to repay £9.4bn of a loan from the Bank of England, reducing the amount owed to £17.5bn.


    Any more ill-informed views that you would like to share with the class?

  • Comment number 6.

    The problem with the plan of action you highlighted yesterday at Northern Rock Robert is that by encouraging customers to move to alternate lenders, allowing the Bank to slowly repay its outstanding liability to the Government, it will only leave the Bank with those customers who can not move.

    This means that eventually all that will be left at the Bank will be those in default, and those of greater risk of default, namely those the other Banks won't touch.

    This in reality will only undermine any residual value in the Bank, the investment by the Government, and additionally further expose the tax payers to greater losses.

    And this is a "GOOD" thing ?

  • Comment number 7.

    Re: £5 YCK

    Surely NR has only repaid such a vast amount by ridding its book of its best customers? What sort of toxic waste remains?

  • Comment number 8.

    Re: #4 NBeale

    Arrears have gone from 0.45% to 1.18% in 6 months, a 160% increase. if that carries on for another 6 months arrears will be at 3.1%. With ?84bn loaned to customers, such an increase in arrears could easily translate into a further ?1.6bn loss.

    I see it as more of a balancing act: it is clear that defaults will increase in the coming months, so the bank has to set its mortgage rate at a sufficiently high level that the profits from those who can afford the resultant higher mortgage payments offset the losses from those who can't (and thus default) - the cost of credit will rise.

    Another factor worth considering is the fact that mortgages fixed at lower rates are constantly emerging from their fixed period, with the result that the bank is receiving higher payments from those mortgagees (or at least those that can afford them).

  • Comment number 9.

    Re: #6 SoapboxJoe

    This means that eventually all that will be left at the Bank will be those in default, and those of greater risk of default, namely those the other Banks won't touch.

    Again, see my comments in post #8.

  • Comment number 10.

    Perhaps the BBC could pay this debt? after all with their scare mongering and crazy urge for an 'exclusive' story they brought down the bank in the first place. Does anyone think there would have been ques at every branch if the BBC had given NR's emergency loan the same coverage it gave the larger loan Barclays had the week before?

    Perhaps if you stick to reporting the news, not creating it we'll all be better off.

  • Comment number 11.

    what I don't understand is why borrow more money whilst paying back the existing loan 'faster' than expected!! Or is this really only by a very small amount.

  • Comment number 12.

    Can someone please confirm that while the Northern Rock logo still appears on a variety of sports teams shirt, the tax payer is not paying for these sponsorships. If I'm part paying Michael Owens salary I want free tickets to see him play, and I'm not a Newcastle United fan.

  • Comment number 13.

    Hmmm, I wonder if this is the same £3 Billion Darling was banking on getting from the French Government for British Energy. No money left in the kitty to bail ourselves out.

    This is another nail in the lie that Brown was anything other than a completely inept Chancellor.

  • Comment number 14.

    If I understand this correctly and I'm not sure I do.

    Northern Rock are encouraging customers to switch mortgages to other banks in order to generate the cash to pay back the BoE. To do this they are being uncompetitve in terms of mortgage costs (interest rates, charges etc).

    This begs the question are Northern Rock not getting shot of good customers with equity who are in a position to switch banks while keeping hold of higher risk customers who have little equity and at the same time charging these more vunerable customers more?

    I can't help thinking that the quality of the NR loan book is gradually degrading into detritis.

    In my opinion reposessions and arrears will soar when the last remaining NR customers who are struggling to stay afloat find themselves paying ever more and unable to switch to a more competitive bank.

    Why the government didn't let this badly run establishment fold I'll never know. It would not have brought down the banking sector, as A Darling suggested, only acted as an warning of what poor management can result in.

  • Comment number 15.

    NR would be bust but for BoE life support.

    It still owes 17.5 bn pounds to us all, but most seem to have forgotten that there is also a Treasury guarantee on all savers monies too. So in reality it is still into us for far more than 17.5 bn.

    Just has a quick look at the statement issued today and as far as I can determine it seems that this potential Treasury guaranteed debt is about 13 bn pounds. (I don't think international deposits are covered.)

    So in reality NR owes us over 30bn pounds!

    I suggest that if the guarantee were not in place then NR would have to immediately find this 13 bn pounds, which it probably could not do and would go bust - so it is very far from being a revived commercial company!

  • Comment number 16.

    NR owes BOE £17bn = £850m per year interest @ base.
    £3bn capital injection loss to taxpayer on interest forego £150m pa.
    Slow draw out expensive death going forward.

  • Comment number 17.

    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.

  • Comment number 18.

    Am i missing something here? why do they need an injection of capital of £3bn when they have apparently just paid back over £9bn, why didnt they just pay back £6bn?
    Did the treasury actually receive £9bn, and if so where is it? Or is this all just smoke and mirrors?

  • Comment number 19.

    Presumably Northern Rock has Assets in excess of liability's ie it still has reserves ?

    If Assets less all liabilities (including Treasury loans etc) is still a positive figure then the Taxpayer has lost nothing.

    Except perhaps the opportunity cost associated with having the money available for other uses.

    Without the Governments intervention, potentially the Taxpayers losses could have been far greater, but with indirect costs....

    There is no guarantee that Private bidders would have managed to keep it going had they been allowed to buy it for a song.

    This leaves the Hedgefunds etc sniffing around the other Banks, who are in healthier conditions anyway.

  • Comment number 20.

    No 18, it is formalities.

    They agreed to pay back the money so that has to happen first.

    Then they request some back, which has to be cleared with Europe as it represents State Aid not already sanctioned.

    Just legal formalities.

  • Comment number 21.

    What happens to the remaining 4700 employees in 3 years time when this bank has the lowest quality mortgage book in history? Can anyone actually see this returned to private ownership under this business model? Its impossible IMO.

  • Comment number 22.

    Northern Rock was a basket case.

    It should have been left to collapse naturally.

    Depositers were protected and the loans would have had to be transferred by auction.

    The loss would have never been fully recovered but it would not have left the taxpayer with so much grief.

    All we now have is a slow death of a bank who overclubbed it and instead of the damage being spread via a multitude of lenders the taxpayer will be left with the full bill.

    This is not prudent or smart this is crass stupidity of the first order.

    This mess is also not as a result of the credit crunch this mess can be sourced to the present governments inability to understand effective regulation as distinct from political correctness.

    Giving the Treasury, the Bank of England and the FSA equal responsibility was demented from the start and only now some £50 billion later can we see what was glaringly obvious. That a control freak was unable to allow anyone to make decisions.

    Save for banking regulation effectively taken from the FSA, little has changed which is an insult to all our intelligence.

    A new remit must be established for banking securities and insurance regulation and those in charge held accountable.

    It is sheer madnes that no heads have rolled but payments have been made for loss of office and retirement that will no doubt include excellent pensions.

    For the past 14 years the illusion of increased wealth generated via debt and seemingly ever increasing GDP has deluded those in the treasury from seeing the wood from the trees. i.e nothing goes up inm a sraight line forever.

    No contingencies were in place and literally total reliance on external parties to keep inflation down became the norm. Our economy is being totally mismanaged and incompetently regulated an this must stop.

    The political summer recess is normally referred to as the silly season for lack of stories. Northern Rock is now a case history in mismanagement and the story will never go away.

    Lets hope that by the time this recess is over sense will prevail, the government will admit its all over, thrown in the towel and a new government clear out the arrogant dross of incompetant regulators, with no compensation, who have caused us so much short and now long term pain.
    and adopt as fresh and effective approach.

  • Comment number 23.

    Comment 8 : Yummy Carol Kirkwood

    "I see it as more of a balancing act: it is clear that defaults will increase in the coming months, so the bank has to set its mortgage rate at a sufficiently high level that the profits from those who can afford the resultant higher mortgage payments offset the losses from those who can't (and thus default) - the cost of credit will rise.

    I'm sorry but this looks like a bit of desperate justification of a chain of thought that's been cut short before it reaches the blockage that requires it to be completely revised.

    I'll accept that in normal times your analysis makes sense. In fact it's what actually happens, I'm sure. The "good" customers are asked to pay a bit more than, rightfully, they should do, to cover the losses from the "bad" customers to whom a little over-exuberance was shown in making the initial choice between to lend or not to lend. Fine. Standard business practice in organisations run by imperfect humans, not perfect machines.

    But does not the whole rationale behind this depend upon the "good" customers vastly outweighing the "bad" ones, so that the balancing offset that you describe has such a small effect on each of the "good" customers that they won't feel aggrieved by it? Nor, indeed, tempted to take their business elsewhere, to an institution that hasn't been quite so wide-eyed when looking at dubious loans? And, likewise, for the offset to require an increase in the mortgage rate small enough not to cause a major increase in the level of defaults?

    Isn't there a point reached where this solution just doesn't work? And isn't this point brought nearer and nearer when volumes of the "good" customers are leaving to take up better offers elsewhere? Is there not a danger of setting off a spiral that goes more defaults --> higher interest --> more defaults, without being in a position to be able to milk the "good" guys to put a dampener on it?

    Your argument seems to me to be based on the whole CDO fallacy - that by bundling all the crap together, and calling it something else, you can, as if with a magic wand, turn it into something that isn't crap. And the magic wand, the property price explosion that RESULTS from acceptance of the fallacy, is something that's going to be around for ever.

  • Comment number 24.

    Why would the government admit that this is going to cost us, the taxpayer, when this morning on Radio 4, Darling wouldn't even acknowledge that if house prices continue to fall (they will) that increasing numbers of people will find themselves in negative equity?

    Until and unless our great leaders tell us that something is is not so.

    There is no rampant inflation.
    The country is not entering a recession.
    You are not in negative equity.

    All hail our great leaders!

  • Comment number 25.

    Is this announcement supposed to make us feel better about the handling of this case ????

    Not a bit of wonder we have to see the massive rises in Vat revenue from energy to cover this fiasco.

    At some time sooner or later Northern Rock is finished its just how much the end result is going to cost us all.

  • Comment number 26.

    thanks for that enlightenment, but that doesnt answer the question of why pay back £9bn when £6bn would have done. It says they paid it back faster than expected...why when they then have to ask for some of it back? Or is this another example of bad management?
    And where, in the accounts of UK plc does the £9bn appear ?

  • Comment number 27.

    When the Wreck was nationalised the taxpayer took on its liabilities. What is happening now is consequential to that decision.

    So it is a case of grin and bear it. I do however feel that the previous shareholders should be sent off with a flea in their ear without any consideration.

    I listened to Darling on the radio this morning. I despise the Labour Party as a bunch of hypocrites and consider Gordon Brown an oaf, but I do feel that Darling is making as good a possible fist out of a poor hand and no money. I sense some political leadership in The Treasury; something we haven't seen since May 1997.

  • Comment number 28.

    #20 No it is just formalities....

    Sure, it's just formalities in the fairyland where Prudence Brown and his cronies live.

    In the real world, it sucks.

    #1 "You mean we can't do whatever we want with our money".

    Sorry, but MY money wasn't involved in this, till the government decided to use MY future taxes to bail out a busted company.

    The word I would use to describe this shambles is "theft", not "prudent management of the economy in difficult times".

  • Comment number 29.

    It is arguable whether NR should have been "saved" in the way the Government chose. I still wonder whether a similar sized enterprise, with a high-risk business model, based in the Southern shires would have received similar help. Maybe that's too cynical.

    The original huge slab of money was designed to keep it going. Repayments seem to be coming along well. But that means it is recovering capital by forcing exitsing customers to re-finance elsewhere, or foreclosing. It's hard to see more than a "rump" company being left.

    The latest slab of money is a direct "investment" into the company. Or a "gift" of our money via the government.
    I fear there is more hope than expectation that we will get that money back in the near future.

    I don't object to EU objectives of limiting the injection of state money into enterprises. However, they seem to be very selective about enforcing their own rules.

    I remember being disgusted when the state-owned French bank Credit Lyonnais went off on a jolly invasion of commercial companies, ran up enormous debts and was bailed out by their government. A few tut-tuts from Brussels. Similarly, their were words of disapproval about the multiple injections of funds into Air France, Olympic airlines, Alitalia etc. Actions came there few.

    I'd have preferred the Government to make a large injection into a private company it has owned for a long time - the Post Office. The organisation used to be held in fairly high regard compared with some of its European counterparts. But it was never provided with funds to get more commercially active. Compare that with Deutsche Post - an old monopoly company that acquired many commercial businesses and is now the largest logistics and distribution company in the world. Why couldn't the PO have been funded to deliver modern services in its area of potential expertise, rather than tinkering at the edges of bureau de change, etc?

    NR took a high-risk approach. Shareholders, the board (and the FSA) should have been more even before the recent credit crunch. I'd have preferred my money invested in the PO, rather than a marginal bank.

  • Comment number 30.

    Oh dear,

    The Bank has basically got rid of £9.7 Billion 'sellable' mortgage customers off it's books and repaid it to the BoE.

    By definition its LTV ratio should increase as a result, deposits remaining the same why balance sheet diminishes.

    However, what is left is bad loans, this is why there is such a large jump in arrears. More of what NR has left will continue to strugge. Lots of buyers will line up to take these mortgages off the banks hands....i think not!!!!!!

    As this gets worse, it is pretty obvious that this Bank is as good as bust and we are all going to be left holding the empty safe!

    It's not a saleable business and as it continues to reduce its balance sheet it will become less and less so.

    However, the BoE will keep printing money push the debt away and as it does we will all

    pay more in tax
    pay more for the same
    strike for more pay

    then have to

    pay more in tax
    pay more for the same
    strike for more pay

    and so on

    This Government and its individuals should ( i will stop there sa as not to get nuked!)

  • Comment number 31.

    When Darling purchased NR on our behalf it was a failed bank, and he either knew it or was stupid. The market had already turned, this wasn't a liquidity crisis: capital markets had stopped lending to lenders that had lent 125% of value to a lot of ninjas (up in 't North).

    Why is it a surprise that NR is writing off £500 mil? House values have already fallen 20% so parts of NR's loans are now for 156% of value. If NR repossesses, they can't sell... and if they did they book a loss of 1/3rd of the loan.

    If only 15% of NR's portfolio falls into that category, you are looking at a loss of £5 billion - a wipe-out in other words.

    Expect more. Darling (and Brown) have committed us to a long-term dog, stating only a few months ago that it was sound.

    The cash injection adds to public borrowing - and there will be more to come.

    That addition reduces the Bank of England's ability to cut interest rates: our government is already borrowing £50 billion this year so they have to offer a higher interest coupon to get extra billions.

    The credibility of Darling and Brown on international financial markets is also shot to pieces: that costs us all extra money in interest.. and in deepening the recession.

    The pair of them - if they had a shred of decency - should resign today, and cause a general election.

    They won't of course - and it is the taxpayers who will pay up richly for many years as the price of their destroying the UK's financial credibility.

  • Comment number 32.

    Why cant NR be run as a decent bank?
    Everyone complains about their bank, NR could be run as a non-profit market leader.

    Decent interest on savings, long term fixed rate loans / mortgages, fair fees, instant transfers of money between accounts. They could even combine their branches with the post office to provide banking access in places where their bank offices and post offices have closed.

    When people start moving their accounts to NR from the other banks then they would have to improve their service to retain customers.

    It might usher in a new era of fair free banking.

  • Comment number 33.

    This is just crazy.

    Leaving aside the fundamental anti-competitive lunacy of the NR capital-raising (as opposed to HBOS, Barclays etc), since when does the FSA get to tell the tax-payers to go to the back of the creditors queue, and who signed off on this?

    Whatever you feelings about the merits of nationalizing NR, the idea that tax-payers should be relegated to holding the most junior piece of the capital structure - precisely what is being engineered through paying down the BoE loans whilst HMT loads up on equity - is quite simply putting public monies even further at risk.

    Bottom line, I guess, is that we all missed the memo where Gordo laid out his plan to turn HMT into a Sovereign Wealth Fund.

  • Comment number 34.

    #32. At 10:51am on 05 Aug 2008, HardWorkingHobbes wrote:

    "Why cant NR be run as a decent bank?
    Everyone complains about their bank, NR could be run as a non-profit market leader."

    I totally agree. Doubtless there's some EU law saying we can't have decent national banks as it would be unfair to Santander et al as they hoover up all our smaller ones.

  • Comment number 35.

    Yet again I ask the same question for NR shareholders.

    What about the bank run?

    Yes that event that would embarrass a banana republic.

    And showed up the regulatory regime to be a complete shambles.

    Sparked by a Bank fo England leak.

    When NR sought support offered to euro area banks by the ECB.

    And offered by the Bank of England afterwards in a U-turn from "moral hazard".

    All those saying NR shareholders should get nothing seem to airbrush this out of history.

    Well, it happened, it should never have happened and in a respectable economy it would never have happened.

  • Comment number 36.

    23 ExcellenceFirst: Good stuff.

    31 bobsytheblogger: I agree. The bank should have gone under. Full stop. Unfortunately we have a government that has been reckless with public money, and overly sychophantic to the 'gurus' of high finance.

  • Comment number 37.

    "This is prudent",now where have we heard that one before?
    As we're all only too well aware one man's prudence is another man's financial naivety and incompetence.
    History will show how prudent this government has been,when Northern Rock is a distant memory and Rover has become "the new Honda".

  • Comment number 38.

    It looks like the management will get huge bonuses next year. At least 10% from this unexpected £3bn revenue. If they spend it on properties, it should improve market, shouldn't it?

  • Comment number 39.

    "If Vince Cable, the LibDem Treasury spokesman, doesn't make hay out of this, he's asleep."

    Robert could I suggest that the government did exactly what Vince Cable suggested, rather than "make hay" Vince Cable should get back to sleep and keep his thoughts to himself.

    The scenario coming out is as predicted by many on your previous blogs. The good mortgages leave and Northern Wreck and the taxpayers are left with those that cannot go, i.e. the dross.

    Whats happening to all those off balance sheet securitised mortgages in "Granite" that will have to be replaced by new ones as part of the agreements?

    What should have happened what the Bank should have been put into administration. This is going to be Gordon Brown's "necklace" for years to come, dither for months then make the wrong decision.
    We need an Inquiry.

  • Comment number 40.

    It seems to me that the number one priority of paying back taxpayers money is at the expense of a sustainable business in the long run as the quality of the mortgage book worsens.
    Are the new deposits of £3.7bn not at risk?
    It is my understanding that the Gov't guarantee only related to existing deposits as of Sept 07. The current ISA option at 6.3% for 3 yrs looks very good but what guarantee exists for getting this money back if underlying going concern looks questionable. Could this mean another big bail out in the future or have I missed something?

  • Comment number 41.

    This is another case of government meddling gone wrong.
    Like any other company in its position Northern Rock should have been wound up.
    Interfering has prolonged the agony and made things much worse.
    There must be a law somewhere to prevent government using tax payers money just to try and get them out of a hole.
    If not then it's time there was before this lot bankrupt us altogether.

  • Comment number 42.

    Great comments....

    I believe that this is all down to risk and time. The merry go round of passing the hot potato has entered a new chapter. The potato is getting hotter and everyone is passing it round more quickly.
    We all know that Northern Rock is in dire straights and can not pay all their debts back. It's just a question of who will lose their money and when. The debt has been transferred back to the tax payer in the hope that time will heal the housing market and the economy. The trick is to keep passing the potato with the hope that in time the potato will cool down.
    The end of the game could be either one of the follwing, a windfall wealth tax, a massive court case that lasts for ever, a large new oil find in the North Sea or a British invention on the scale of the mobile phone. However, there is one other alternative ...How about the original shareholders of Northern Rock having to trump up the cash. After all, it was their company that lost the money. Let's make shareholders take more risk.

  • Comment number 43.

    I fail to see how throwing good money at this will ever do any good , the brand is ruined and cannot recover , the only hope I feel is for a purchase by another lender with a guarentee from the tresuary to back the debt .
    Northern Rock is a dead duck and should be taken out of the high st as it has no chance of surviving without taxpayers money

  • Comment number 44.

    We "British Tax payers" will never see this money again. The new £3,000,000,000 again.

    As for the earlier £27,000,000,000, the first £9 billion was easy back as the people who could move from Northern Rock did.

    The next £9 billion will have difficulty and we might see some of that back.

    Forget the final £9,000,000,000

    Figures look nice when they are wrote down in full figures.

  • Comment number 45.

    This remins me of the favorite Monty Python sketch:

    Never mind that, Prime Minister. I wish to complain about this Bank what I purchased not 6 months ago ago from this very Treasury.

    O: Oh yes, the, uh, the Northern Rock...What's,uh...What's wrong with it?

    C: I'll tell you what's wrong with it, my lad. 'E's dead, that's what's wrong with it!

    O: No, no, 'e's uh,...he's resting. When it wakes up keep feeding it money, IT;LL BE FINE

    C: Look, matey, I know a dead Bank when I see one, and I'm looking at one right now.

    O: No no he's not dead, he's, he's restin'! Needs more funds. Remarkable bank, the Northern Rock, idn'it, ay? Beautiful Taxpayer assets!

    C: The assets don't enter into it. It's stone dead.

    O: Nononono, no, no! 'E's resting! I'll wake him up. Heres another 3 Billion, wakey wakey!

    O: There, its deposited something!

    C: No, he didn't, that was you hitting the taxpayers!

    O: I never!!

    C: Yes, you did!

    O: I never, never did anything...

    C: (yelling and hitting the taxpayer repeatedly) 'ELLO FOOLS!!!!!

    Testing! Testing! Testing! Testing! This is your WAKE UP CALL!

    (Takes Bank out of nationalisation and thumps its head on the counter. Throws it up in the air and watches it plummet to the floor.)

    C: Now that's what I call a dead Bank.

    O: No, no.....No, 'e's stunned!

    C: STUNNED?!?

    O: Yeah! You stunned him, just as he was wakin' up! Northern Rocks stun easily.

    C: look, mate, I've definitely 'ad enough of this. That Bank is definitely deceased, and when I purchased it not 6 months ago ago, you assured me that its total lack of movement was due to it bein' tired and shagged out following a prolonged period of mis-management.



  • Comment number 46.

    I remain impressed that the financial authorities have not remembered the lesson of the of 1930's. What is the point of insisting on higher capital ratios and the associated capital raising and encouraging banks at the same time to shrink their balance sheets, and then WONDER out loud why there is a credit crunch.
    Surely if it is now appropiate for banks to be better funded overall then the above action would have been better initiated a few years ago. Frankly the government and its agencies have been asleep at best or criminal at worst in not acting to limit the actions of the NR and others business model. How the FSA and the BofE could confirm to the Chancellor that NR was a sound business mystifies me. The loss and recapitalisation for all the "special reasons"shows the absurdity of the statement.
    We will see further accounting adjustments from NR as the poor quality of many of its loans become exposed.
    There are real historic reasons for ensuring first time buyers put down deposits, borrow between 3.5 and 4.5 times salary and meet credit checks. Yes it is a shame when not everyone can climb on the property ladder, but to ignore completely some simple guidelines on successful risk management for the bank but equally for the customer leads to this situation.
    If the government was truly concerned for the non house owning minority it would have eased the planning laws and built more houses. More supply = lower prices. Instead it encouraged reckless lending. So beside the obvious pain to the country's financial sector there are going to be lots of individuals who will suffer ongoing hard ship because this government was not as prudent or responsible as it should have been.

  • Comment number 47.

    I'm surprised to read the increase in repossessions described as "the most politically charged statistic". Yes, that's politically important. But in my book, it pales into insignificance beside the government effectively throwing away another 3 billion quid of our money. 3 billion quid is actually quite a lot of money.

  • Comment number 48.

    @ YummyCarolKirkwood

    So they've given back £9m (well, now technically £6m) SO WHAT!? They should never, categorically been bailed out with taxpayers money. More rewards for failure. Failure in business is not acceptable, no matter what New Labour/Bleeding Hearts say or do. The people at the top should loose their jobs - and any golden handshakes/bonuses/parachute payments should be lost as well. Anyone else would be sacked for these sorts of massive failures - why are these people any different? They chose to make unethical irresponsible investments in the name of greed - why is that ok? I understand that risk taking is an important part of this game (well, it is a form of gambling after all) but there is a duty of care, a responsibility to its investors if you will.

    If the £27bn was indeed a loan, then why it is generally recognised now that NR is State owned. My level of English comprehension is fine - thank you for asking though.

    Patronising in the manner that you have is childish –and rather pathetic. I was merely pointing out – perhaps ineloquently - that the issue shouldn’t be about Europe, as plodge had asked, rather it should be about NR’s and the Governments gross ineptitude – which is unforgivable IN MY OPINION (what these comment are about after all) – and the fact that of the £9.whateveritwas that has been repaid, £3bn has been give straight back. Top be fair to NR, a loss £585m is a whole lot better than was perhaps expected. Still not good enough though.

  • Comment number 49.

    My understanding was the rights issues we've seen were needed due to the money markets drying up, not to improve capital ratios.

    With the huge devaluation of mortage backed assets recently, would this not improve the capital ratios rather than hinder them?

  • Comment number 50.

    @ YummyCarolKirkwood

    My spelling on the other hand could use some work... :D

  • Comment number 51.

    i have just watched Darling on television saying (with a straight face) that the £3bn he is giving to NR "will be recouped when the bank is sold" now either he is living in cloud cuckoo land or he is being economical with the truth if he thinks that anyone would ever buy NR. Surely Darling and Brown as "directors" of NR should be called to account by the FSA as they are misleading the shareholders (ie the UK taxpayer) by giving out statements they know to be untrue.

  • Comment number 52.

    #45 Peter,

    OK so the bank is dead, but unlike a parrot once dead it can still live and it is essential that it appears to live on to minimise the financial disruption to the whole aviary.

    We need to have faith in the remaining (dead?) parrots or to quote John Laurie's character from Dad's Army 'We are all doomed... doomed'.

    #48 Simon

    20:20 hindsight is wonderful. To some of your questions: NR is state owned as there is an Act of Parliament that says so.

    Interest rates have been kept artificially low for a decade or so through these synthetic financial instruments that have been used to generate extra low cost money which had to be lent to riskier and riskier borrowers. The bubble had to burst and it did. However the way forward is the real problem isn't it? Harping on about what should or should not have been done in the past may be fun but...

    The fact is that as you point out in your next to last sentence the bank is still running. Many others have had to receive gigantic rights issues refinancing during the year and they are also still running. It is just unfortunate that nobody in the private sector would finance NR so in the end the stability of the system is maintained in the only way it could have been. Or would you rather, on economic terms, have had NR (and by extension ) Fannie Mae, Freddie Mac etc. go bust?

  • Comment number 53.

    Having stolen the company from the shareholders.... in a few years the Gov. will sell it back to the private sector for a profit.

  • Comment number 54.


    "We need to have faith in the remaining (dead?) parrots or to quote John Laurie's character from Dad's Army 'We are all doomed... doomed'."


    "Or would you rather, on economic terms, have had NR (and by extension ) Fannie Mae, Freddie Mac etc. go bust?"

    I think you will find that we are , if not doomed, in for a hiding and the three banks you mention DID go bust, they are and will remain insolvent except for delaying tactics of each of their goverments to prop them up by printing money.

    The result will be the same, just the extent of the damage will be greater because of these stupid actions.

    There comes apoint when the last resort goes skint and what will happen to the next bank in trouble then?

    This is russian roulette, betting on a turn around or on another bank(s) collapse in an area that no finance person has been before.

    Look at the markets, everyones running around like headless chickens wondering where to invest money, there is no safe haven at this time because every market is reacting toally differently in relation to each other never seen before -

    Should we have let them die? Yes and out of the mess would have been a system that HAD TO BE FIXED instead of a system that will in future times say, AGH WELL , LETS GAMBLE, IF ALL ELSE FAILS WELL GET THE TREASURY TO BAIL US OUT.

  • Comment number 55.

    One has to ask the question, especially on a finance related blog such as this; why is there no support for the symbol used for our own currency - the pound sign?

    It would help to make the huge numbers look more realistic...

  • Comment number 56.

    @ John_from_Hendon

    Thanks for the clarification of NR ownership.

    Whilst I agree that some aspects should be left in the past (although NEVER forgot, and absolutely used as an example of how not to run a bank and learned from), I feel that the board of NR have gotten away with it. That is what stinks! The warning signs should have been obvious the minute 80 percent mortgages and above were made available. Personally I think it is grossly irresponsible to lend this amount of money to individuals. Perhaps a precedent should be set now and stop rewarding failure. These people are blight on our society - just as much as those that collect ASBO’s for fun! I’m sure that if it was their own capital, they wouldn’t be as blasé about investing in sub-prime markets.

    The Government should do everything in its power to save the homes and belongings of people who have mortgages and loans that they are diligently paying off - but they should not prevent the bank/business from going under. (Slightly OT - What about the newly weds that have lost their gifts after Wrapit called in the administrators? Surely they are as deserving.)

  • Comment number 57.

    Yummiecarolk.. How much of the money Crock has repaid has been derived from those depositing more than the £35,000 currently g'tteed in other accounts? At the moment, any deposit up to £250,000 in a Crock account is 100% secured by the government - it's as safe as gilts and the Post Office. When the g'ttee is dropped, how much of that money will remain there and how will Crock be able to deal with the massive outflow that is bound to occur just before it is removed? The 'repayment' is not the miracle recovery you imply.

  • Comment number 58.

    Why doesnt Mr Northern Rock simply watch some daytime television like a lot of the scroungers in this country do.

    There are some very educational adverts advising that it is easy to consolidate all our you debts into one easily managable payment. Whilst they are there they may be able to make some extra pocket money by lodging a no win no fee claim for something that may or may not have happened.

    I find it ironic that establishments that have spent many years allowing and encouraging people to get into debt are now complaining because they themselves are in financial trouble.

    Nothing but sarcasm intended.

    PS I used to work for one of the top 4 banks, so I am fully versed in some of the tactics and tricks used to get people to increase their debts. Although the high level management deny this goes on they definitely happen at street level.

  • Comment number 59.

    #54 Peter

    In your lasts paragraph you advocate letting the banks 'die' as a 'solution'.

    Granted they are dead along with their flawed financing model but having some knowledge of letting businesses 'die' I must say that it have never convinced me that it is an efficient or economic 'solution'. The process involves extremely high costs and an excessive expansion of accountancy firms who have to learn from scratch about the businesses and their record systems just to be able to wind them up. (This is indeed why a British version of 'Chapter 11' is suggested.)

    Also you say that 'there is no safe haven' for investments, but have you considered UK Government Bonds? As far as I know these have not been defaulted upon in recent history. (Please correct me if I am wrong?)

    #55 duke - the pound sign

    Well it is all to do with 'character encoding' theses blogs seem to be unicode (UTF-8) if you, or the BBC encoded them as, or changed their encoding in you browser to, western (ISO 8859-1) then the pound sign can be seen once again (at least in Firefox!) 'GBP' is popular as is 'pounds'.

  • Comment number 60.

    Comment 52 : John from Hendon

    "The bubble had to burst and it did. However the way forward is the real problem isn't it? Harping on about what should or should not have been done in the past may be fun but..."

    I couldn't agree more that the way forward is the important thing here. Yet I can't help getting the impression from all the "let's draw a line under this" merchants is that they don't really want to know the reasons behind the failures of the past, in case they destabilise the already-agreed plans for the approach to the future.

    It's as though they know that the same old cycle of inflated expectation and revisionary adjustment is what will occur, as long as no one looks too hard at what causes it, and that the best thing for all of us is that we just allow this to happen.

    I dispute this. I think that there is a way to prevent mass stupidity from creating snowballs of opinion before which rational thinkers are forced to bite their tongue. I appreciate that we live in a democracy and that it is not plain-sailing for the direction of society's journey to broadly be controlled by serious intellect. But, plain-sailing or not, it is possible, and we should be making every effort to work out how.

  • Comment number 61.

    By "the government", Robert, you mean of course, "the taxpayer".

    Why not say so. We are bailing out a company which is insolvent. We know it. You know it. Brown and his apparatchiks know it.

    So why pretend? Anyone would think the Beeb had been nobbled by New Stasi, given the utterly unquestioning nature of this report.

    (And that is why we gave our TV away - the license is just another New Stasi tax)

  • Comment number 62.

    could it be that we are experiencing the birth of the first social or ethical lender to the main stream market place.

    the ability for oridinary people to be able to borrow at reasonable rates of interest set on a long term basis in order to buy a roof over their head.
    hold on isn't that why building societies were set up?
    it would be a real achievement if something postive were to result from such a mess.
    the only issue remaining for the government is who can be trusted with a bank that puts its customers and employees interests ahead of that of its shareholders?
    something for the john lewis list l think!

  • Comment number 63.

    I think Robert needs to check his comment about the £3bn being added to the UK Government's 'National Debt'. The UK uses the definition of 'National Debt' that is 'Public Sector Net Debt' not the 'Gross General Government debt' that most of the rest of the world uses. Although the £3bn will definitely be a cash requirement, if the Treasury can show that it is receiving some 'liquid assets' in return then, due to those quaint accountancy rules, it may not appear as part of the 'National Debt' and embarrass Brown, Darling et al. It is less relevant when the fact that the unfunded Public Sector pension liabilities, which are certainly not published, are considered to be bigger than the National Debt anyway. The phrase 'smoke and mirrors' springs to mind!

  • Comment number 64.

    Turmoil in banks,where did it all begin? Those people quick to make a buck,saw by encouraging many to buy homes with money lent by banks(125%-northern rock) many with no chance of paying in a falling market. This was to be our utopia. It was encouraged by Govt,banks,builders. many millionaires were created. What is the solution? Govt talks of windfall taxes. banks say lets have better risk controls. builders more Govt sponsored cheap homes, eco-towns. Where is the money coming from? The taxpayer or the millionaires the Govt created by their prudent management of the economy in allowing many to keep the economy moving by creating spending power from the myth that rising house prices would provide this. Where lies the answer?

  • Comment number 65.

    I realise that I may be in a minority here but I can't let comment 6 and 14 (and almost everything that has been said by financial experts on the telly) but some of the remaining NR mortage book is good quality and not sub prime detritus. The Mem and I took out a 5 year fixed rate in February 07 before it all went Tango Unifrom and the rate we got then can not be betterd at the present time so unless I am missing something why would we want to (or need to) move elsewhere before 2010 ? We have excellent credit ratings and are a long way from negative equity. I appreciate that not everyone is in this position but not all of the NR book is dodgy and I wish commnetators and reporters would acknowledge this.

  • Comment number 66.


    "have you considered UK Government Bonds? As far as I know these have not been defaulted upon in recent history. (Please correct me if I am wrong?)"

    Okey Dokey, here goes

    Inflation is form of default, ramp it up and your investment isn't worth the certificate the Treasury g'teed you. In five ten, or thirty years, you won't get back anything that has anywhere near the buying power of today's dollar or pound -

    Hope ive sorted it for you?

  • Comment number 67.

    Except Gold of course, which is where it all began and where it will start again.

  • Comment number 68.

    Surely the economic crisis we're all experiencing is directly related to so many of our building societies, formerly known as mutuals, changing their status to PLCs. Northern Rock like the Halifax, Abbey etc are now there primarily to serve their shareholders. Just like our many utilities eg Water Boards, Gas and Electric which were sold off and changed to PLCs.
    This movement began if I remember correctly in the '80's. We must remember that the Iron- Lady's legacy lives on.
    Governments are now expected to intervene when the private profit-making sector goes wrong. So today, the Banks are looking to privatise profits and as we see in this case nationalise losses.
    There must be alternatives.

  • Comment number 69.

    @66 - Index linked Gilts?

  • Comment number 70.

    #66,#67 Peter

    Every investment is subject to inflation or deflation. Holding, or not holding any cash, or asset is a risk.

    I do not agree with your suggestion that Gold is the exception - every asset can change its monetary equivalent over time and to complain about it is to seems to me to suggest the onset of some sort of sudden unexpected revelation that things change!

    Inflation is not a 'default', unless it is hyper inflation of course - we are not suffering such inflation at present, except perhaps in house prices over the last decade! The inflation of house prices has halved the value of monetary assets - or some such proportion anyway. That is the financial matter whose name we cannot speak.

    it is apparently OK for house prices to go up so long as the CPI stays low - this is a nonsense - but that is the 'crime' that we have been collectively persuaded is good for us. House price rises are just as important an inflationary influence as any other. It is just that the Treasury mandarins have conspired to keep them out of the index!

  • Comment number 71.


    We won't return to a gold standard, it has flaws too.

  • Comment number 72.

    #5 yummycarolkirkwood

    ...sorry, but I can't let you get away with that....

    Yes, the money to Northern Rock was a LOAN.

    ...but then so was the sub-prime market mortgages, and look what happened there.

    A loan is a gift - until it is repaid. If NR goes belly up, that loan will never be repaid.

    ....and that loan came from the taxpayer....sorry I mean 'the mugs'.

  • Comment number 73.


    "When Darling purchased NR on our behalf it was a failed bank, and he either knew it or was stupid."

    That's the real question isn't it......has he done it to save a certain rich man (or men), or is he just stupid and actually has no idea about running the economy...

    Either way - it's not good for this country.

  • Comment number 74.

    #60 ExcellenceFirst, yes, agree, the past can inform the future.

    If the banking and other shysters are made the scapegoats, the same mistakes will continue to be made, and the market system will remain dysfunctional. This is the most likely scenario, for at least one or two more full scale depressions, as we move from our state and/or crony capitalist states towards freer market economies.

    The market system is dysfunctional because the real economy was hijacked by the financial economy. The regulators helped this to happen.

    It is best to illustrate by analogy. A free market system should enable the economic expression of individual choice, just as the voting system enables its political expression.

    We know that a politician dreams of obtaining political power without being elected. Their Holy Grail is to be both unelected and unaccountable. Ideally they would be appointed by their peers to a supra-ordinate body with unlimited powers. Think Brussels.

    There is no need for a conspiracy theory. It dawns on everyone in a political role that they have the opportunity to join. This is why the Lisbon Treaty slides its way through, without the people being allowed to vote. Trust the incorrigible Irish to be the spoil sports!

    It all goes on under our noses. The parliament in every European country talks with pride about democracy and transparency.

    But these elected parliaments in the EU are the nursery. We have another opaque parliament which actually makes the important decisions. Only people who have proved their malleability in the nursery are elevated to Brussels. (Wither democracy?)

    Beneficiaries of the financial economy also have their Holy Grail.

    Where politicians prefer to have power without depending on voters, beneficiaries of the financial economy prefer not to have to use their own money.

    Also, politicians prefer not to be accountable to voters: they would rather deal with lobbyists. Similarly, beneficiaries in the financial economy prefer not to be accountable to the people who provide the money: they would rather deal with pension fund managers than pension fund contributors.

    The political hijackers have not quite found their Holy Grail: the power of Brussels is still muted. But the financial hijackers found their Holy Grail by the nineties. The first requisite had been to take control of decision making in the public company, which had become like a riderless horse. The second was to remove pension fund monies from their safe havens and put them into play in the financial economy. The third was to encourage the creation of financial conduits who could work opaquely, immune from public scrutiny, to facilitate the deal flow: hedge funds. Ten thousand of these were created in the nineties.

    Once again, there was never any conspiracy. They were evolutionary developments, which is not to say they happened by chance. To come into being they required the active incompetence of regulators.

    Then the fee-generating business began in earnest.

  • Comment number 75.


    "Every investment is subject to inflation or deflation. Holding, or not holding any cash, or asset is a risk. "

    Yep, and my point wasn't contrary. Its the lack of logical patterns between all the different investment vehicles preventing people from using usual mechanisms to decide where to invest.

    The interaction between the different markets is not working anymore - its broken

    yes #69 Index linked Bonds are being bought up, i think demand outstrips supply. btw, these current gilts bonds are assuming inflation is going to stay above 4% for decades to make a higher return than next tier bonds - that says it all

    Allthough your assumption that these are totally risk free is ridiculous - A lot of revolutions in so called "safe" economies did not happen that long ago! Any governmnet can be removed and its debt welched on.

    How did this

  • Comment number 76.

    unclearengineer wrote:

    "Can someone please confirm that while the Northern Rock logo still appears on a variety of sports teams shirt, the tax payer is not paying for these sponsorships. If I'm part paying Michael Owens salary I want free tickets to see him play, and I'm not a Newcastle United fan."

    Sponsorship is advertising. You don't think private companies give football clubs money out of the goodness of their heart do you? I assume you want the bank to succeed, repay the loans and make a profit on a sale maybe.

  • Comment number 77.

    Lets look on the bright side shall we, unlike sucessive Governments we can learn from this experience, and in fact I strongly believe that the housing bust will not be as bad this time round because the public have learnt from last time the Government screwed up the economy.

    So what have we learnt?

    1) The government is never really in control of the economy (despite it's claims). The market, and specifically the biggest players in the market who have the most influence over the economy. The government will take credit when the economy does well, and will blame 'something else' when it's not doing well.

    2) The banking system is not as solid as the government would have us believe. As an earlier comment eluded to the privatisation of our banking / BS industry where 'solid and reliable growth' is replaced with 'profit at all costs'.

    3) Never trust a board of directors. Don't expect them to know the business they're in, and most of all be assured that no matter how badly they do their job, their politician friends will ensure they don't pay the penalty.

    4) Strangely most people now know how NOT to run a bank. They also know much more about the money markets and how prone to malfunction it all is.

    5) The little man on the street is always the loser. Big losses can be spread thinly across millions of people to make the impact much less.

    6) Business (especially banks) act like maladjusted boys. They cry for regulatory freedom to expand profits, but always get greedy and screw it all up in the thirst for profits. The Government is a bad parent and business simply grows up without ever learning the consequences of it's actions.

    7) (for the BBC) - be careful what you report. Not all leaks are good for the public ears. It's very easy to spread panic when you're not careful and entirely considered in your reporting. You don't seem to have learnt from Dr David Kelly and the WMD dossier.

    8) The word 'Rock' is no longer associated with stability. The word Applegarth can now be added to the OeD with the description 'Idiot who got away with murder', Darling now means 'nice man, shame about the job' and of course the famous 'Brown' will always be associated with ..........I'll have to pass as it won't make it past the moderators!

    This is all pointless anyway, if we don't get off this planet soon we're all dead anyway as we seem to have burnt all the forests and exterminated most of the wildlife.

    Humans are the most intelligent species??

  • Comment number 78.

    I completley agree with John from Hendon. In the last decade we have seen massive house price inflation which has been fuelled by the easy monetary policy that has been advocated by the central banks and the private banks.

    In this time of reflection, the question we should be asking ourselves is whether our economy should be so heavily weighted towards the housing market? Surely the next time where we experience low inflation in commodities but high house prices, Central banks and goverments should take steps to contol house price inflation?

    Just a thought?

  • Comment number 79.

    I small thing that seems totally overlooked is that GB Plc has no money. Blair and Brown have wasted all the money they inherited when they came to power, in chasing those two dead certs 'spin' and 'folly'.

    Now all the money Alister Darling has been using and is now promising for Northern Rock has all been borrowed from IMF.

  • Comment number 80.


    We all know that Brown and Darling have really wasted billions on Northern CRock, have they now also trashed the housing market for the foreseeable future?

    I ask this as Darling's 'hint' at suspending stamp duty - at some future, undefined, time - will have the obvious impact of freezing the market until this measure is either instituted or clearly rejected. After all, why buy now if payment of stamp duty may be suspended next month, or the month after - or sometime soon?

    Typical Labour: if they had announced it - and implemented it at once - it may have had an positive impact. Alternatively, if Darling had publicly rejected the idea, a clear unambiguous signal would have been given.

    Instead we have the usual governmental dither.

  • Comment number 81.

    For all you folks still banging on about 125% loans and 'bad debts' with regard to NR's mortgage book: What bit of Robert's statement that NR's arrears are better than the industry average can you just not seem to grasp???

    Does that not give you a little clue that it was not NR's own mortgage book that caused the problem?


  • Comment number 82.

    If Northern Rock has an increasing number of defaulters on mortgages, yet will not repossess to take action on the defaulters, why should the taxpayer be propping up the bank so that the people who irresponsibly borrowed money are saved from facing the consequences of their actions, i.e. repossession? Also if NR won't repossess or take action against defaulters as it is backed by the government, what incentive is there for these people to make repayments? The NR should have been allowed to go bankrupt, and should now be following normal market forces to correct it's default arrears, i.e. threatening repossession on irresponsible borrowers.

  • Comment number 83.

    Why did Brown nationalise this failing business? Because others (Branson etc) had said they would carve up the business and lay off staff. Those staff are mainly in the northwest and labour voters. Instead Brown used our money (taxes) to shore up Labour's political future and the legacy continues now. No wonder we are so cynical about politicians.

  • Comment number 84.

    The Labour Government under Gordon Brown and his "chancellor" Alistair Darling had only 2 real options with Northern Rock.
    1 Nationalise it.
    2 Put it in administration, Something advocated by David James the "Company Doctor".
    They decided to nationalise it without any apparent evidence of anyone conducting Due Diligence. They are now faced with putting in a further £3bn. plus £0.4bn. from changing preference shares to ordinary share capital.

    The charge for customer loan loss impairment in the first half of 2008 amounted to £191.6 million, compared with £56.8 million in the first half of 2007 and £182.9 million in the second half of 2007. (Company accounts Page 11)

    It is clear from the 2008 Half Year results that the best mortgages have left the company the remaining best performing mortgages are going to find their way into Granite to replace early leavers (page 13) while we the taxpayers are going to be saddled with the rest. The Debt Management Department is increasing staff from 185 to 500 and they refer to the housing conditions as "challenging". They go on "Residential arrears over 3 months have more than doubled since the start of the year to 1.18% at the end of June, and the higher LTV end of the book is particularly exposed to housing market deterioration". In reality the Residential arrears have increase from 0.38% a year ago. Where will they be in the next 12 months.

    This is hardly the investment that we were promised by Mr Brown only a short time ago. The only people who are going to benefit from this nationalisation are the current Directors.

    The full accounts are available at

    The announcement today should require the recall of Parliament and a full Public Inquiry into the Government actions prior to Nationalisation. We all know that Vince Cable will be in hiding but the Tories should be calling the Government to account.

  • Comment number 85.

    When new-labour came to power they had a grand plan.
    All banks were to become cowboys and all members of the public were to become property speculators.
    Thus was born the monumental disaster that is now unfolding.
    A little bit of control would have been nice.

  • Comment number 86.

    "Darling's 'hint' at suspending stamp duty"....

    the man is a fool, so what does he think potential buyers are going to do now...rush out and buy a house? No they will wait until the white rabbit is revealed from the chancellor's top hat. So much for a "kick start".

    Why does the housing market need help...every time the government tries to interefere it just makes it worse. Houses are overpriced so let the market find its level.

    Remember no one is in "actual" negative equity unless they decide to sell. It is like the people who say they have lost a fortune on the stock market. They only lose if they sell, i have a portfolio and havent lost a penny. I have a house and havent lost a penny...stop this stupid "my house is worth x+y" It is just a place to live in .

  • Comment number 87.

    Quick sanity check for all the sensationalist tabloid style posters here - although they are quite appropriate appearing on the blog of a sensationalist tabloid style BBC business editor.

    - NR has paid back over 9bn GBP in loans, plus interest.

    - All directors and non-exec directors who were involved in the flawed business model are gone.

    - NR is now the most closley regulated bank on the planet - qute right as it still has 17bn GBP of loans (not gifts as some of you seem to think) to pay back to the government.

    - The taxpayer is currently not out of pocket at all and is in fact getting a tidy sum in interest on the secured loans remaining.

    - When the loans are paid off the smaller NR will most likely be sold off, again at a profit to the taxpayer.

    So why are so many of you going on about administration, bankruptcy, Northern Crock / Wreck / etc., broken bank, blah, blah, blah?

    Do you want the company to be destroyed? Do you want the remaining 4000 staff to be out of work? Are you anti-Labour/Gordon Brown and want to use NR as a stick to beat them with? Or are you just a miserable mean spirited person in general?

    Whatever your motivation I am genuinley interested as I am one of the staff staying at NR and frankly after nearly a year of reading at lot of rubbish I am at a loss as to why people seem to enjoy making such uninformed and unpleasent comments.

  • Comment number 88.

    We're all missing the point; when NR starts the reposessions because of the high number of defaulters on its books the Govt will own thousands of council houses again, who will rent them out at subsidised rents to traditional Labour voters.

    So much for Mrs Thatchers property owning democracy ...

  • Comment number 89.

    no 87 you are right, everyone else, you are sheep following Robert doom n gloom Peston.

  • Comment number 90.

    #87 I am not a sensationalist tabloid poster but an international manager.
    i do hope for your sake that NR will be sold at some time in the future and you will keep your job. But dont hold your breath, where do you think the £9 bn + interest NR has "repaid" actually came from? Not from the profits of a well run company but from NR "selling" its good loans to other banks. Well it doesnt take a business genius to work out that it can not continue for long down that road (I notice you didnt mention the £600bn NR has lost since it was nationalised. ) your plan that a smaller NR will be sold at a profit is flawed , a future NR smaller, and carrying loans that no one else will take, will find it difficult to find a buyer, let alone at a profit.
    The nationalisation option was chosen for political reasons as at the time the dithering PM was still in "election mode" and dare not let NR fail. It was the worst possible decision for the taxpayer and this government will rue the day it decided to take the "easy option".

  • Comment number 91.

    To startimp post 88::

    No, YOU are missing the point. Read Robert's blog again- he reluctantly acknowledges that NR's arrears are lower than the industry average. What do you think that means??? It means that other banks (including those that are now being labelled 'well run') have WORSE mortgage books than NR- why is that so hard for folks to understand???

    Isn't anyone else curious as to why a BBC journalist chooses to use terms such as 'notorious' in relation to the loans of a bank that has a better than average mortgage book?

    Why don't you tell us who has the worst arrears problem Robert- surely they must be 'notorious' too??


  • Comment number 92.

    With every passing day the decision to take the Rock into taxpayer ownership look more and more ridiculous.

    The losses today are ones that will never be repaid on a discounted cash flow basis.

    The Rock is a truly dangerous precedent and model for what to do with future bank failures.

    The taxpayer should never have made any of the bondholders whole and the bank should now be safely in the dustbin of history.

    I see that the Government are today thinking of fiddling with the housing market in order to try and generate some activity. What needs to happen is for prices to fall to a level at which there can be some profitable activity, and government intervention will only delay falls to those price levels.

    Why cant they just leave stuff alone?

  • Comment number 93.

    Northern Rock's mortgage book is riddled with fraud and bad debt, but so it seems are all the other lenders'.

    Everything we've seen so far is due to ripples from the sub-prime crisis in the USA.

    The sub-prime crisis of the UK has not yet hit.

    Hold on tight, because it's going to get a lot worse over here...

  • Comment number 94.

    Does anyone know what the Governemnt position will be on Northern Rock if as is likely their liabilities continue to exceed the value of their assets save State injections of cash?

    Would the State have to allow the bank to go bust now with depositors being paid only £50,000 though the State was the owner if the EU prohibited further funding?

    Depositors need to know.

  • Comment number 95.

    Great post Preston.

    I think 2 points are missing

    The FSA has agreed to allow Tier 2 capital to cover Tier 1 requirements. So, not so good stuff will count as cash.

    Although it's all secret at the moment as to who is borrowing or being given slack, so other banks might be doing this.

    Northern Rock had a problem with the normal "3 months with no payments" rule of reporting. If their customers missed payments and didn't then start paying on a regular basis, they would add that to the mortgage, and state the borrower was not in serious trouble.

    This accounted for some of the reason they claimed such low figures compared to everyone else, despite the high risk lending.

  • Comment number 96.

    Why does the BBC always give airtime to Vince Cable but never to the opposing view which in my opinion is best presented by John Redwood.

  • Comment number 97.

    To post 90:

    Where do I think the repayment of 9bn GBP has come from?

    I don't think, I know it has come from current customers redeeming 9bn GBP of mortgages before moving to other lenders. When they move, they repay us the balance. This reduces our number of mortgages from around 100bn GBP downwards towards the smaller planned figure of that we are heading for in a couple of years. We repay the government the loans we have secured these mortgages against with the redeemed money.

    Also, please remember that on an arrears figure of 1.18%, that means that 98.82% of our customers make their mortgage payments with interest every month, paying that interest to us at profit.

    Also, NR admin costs are the lowest in Europe in terms of running a bank.

    We have not lost 600bn GDP since we were nationalised either as you state (a typo I suspect). It is 600m GBP and the majority of these losses are very cautious write downs/charges/etc.

    We will see in a couple of years which of us is right. The money will all be repaid with interest. Nothing anyone has seen so far can make them think otherwise - i.e. paying back £9bn GBP should really be a cause for hope, not an excuse for doom and gloom spin.

  • Comment number 98.

    I am amazed that the govt is putting 3 billion in capital into the bank, this is two billion more than currently on the balance sheet which has not yet been paid to shareholders.

    The chances of selling the bank back to the private sector for three billion are remote.

    There is a huge difference between giving a loan and providing capital. I previously thought the gov. would make a killing on this deal but now it looks like a disaster.

  • Comment number 99.

    Just had a quick read of accounts and have two points:

    Interest paid is higher than interest received therefore high interest being paid to Bank of England. So govt. is profiting from demise of Northern Rock.

    Accounts clearly indicate monies lent from central banks under liabilities unlike HBOS which has received monies but does not declare it in its accounts.

  • Comment number 100.

    This is purely hypothetical--- but in the event that former Executives of Northern Rock, now departed, were receiving heavily subsidised mortgages from the company during their employment.........should we expect that they will have been amongst those borrowers told, that to help the payback to tax payers, they should pay up in full and re-mortgage elsewhere ?


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