Northern Rock bailed out by Bank of England

[Guest111]

Mods,

Can I suggest the title of this post be amended to avoid panic and scaremongering ? NR weren't bailed out they were given a loan by the BOE, there is a huge difference.

I wouldn't agree...if getting an "emergency loan" isn't being bailed out I don't know what is?

 

[ClubMan]

I have a bond with NR which doesn't mature untill next year. Should I be worried???

Probably not. Especially if it is for less than c. €54K.

Sorry - that should be c. €46K (£31,700) and I was using an incorrect figure of £37,500! See .

 

[z105]

Fair enough - and there's me thinking that visitors to AAM were above "average punters" or even "avergage punters" !!

 

[Sunny]

I wouldn't agree...if getting an "emergency loan" isn't being bailed out I don't know what is?

Believe me, it is very different. But clubman is right. Probably doesn't make a difference to the ordinary investor

 

[Duke of Marmalade]

I'd be inclined to agree not to panic. Not because of strengths of balance sheets or anything like that but because the BoE has decided not to let the unthinkable happen, having started the support process it is hardly going to stop.

But consider this. NR had to go to the BoE because the big boys (the MM) were no longer prepared to lend to it. If its not good enough for the big boys why should the little people continue to deposit with them.

 

[Jethro Tull]

RTE reported that NR Ireland has 25,000 customers with €2.4bn on deposit (an avergae holding of €96k!!).

 

[Sunny]

But consider this. NR had to go to the BoE because the big boys (the MM) were no longer prepared to lend to it. If its not good enough for the big boys why should the little people continue to deposit with them.

good point. Unless they decide to increase the deposit rates for the extra risk of course!!!

 

[Jethro Tull]

But consider this. NR had to go to the BoE because the big boys (the MM) were no longer prepared to lend to it. If its not good enough for the big boys why should the little people continue to deposit with them.

Money market liquidity has dried up, NR's business model needs large amounts of cash from the MM. they don't have much cash on deposit and I don't reckon this is exactky the time to securitise loans on your balance sheet. Hence no one will lend money.

 

[regicide]

It seems quite clear that NR is not in any serious trouble right now.
However is there a chance that due to a rush of uninformed panic, a significant amount of customers might withdraw their money - causing a feedback loop which will serve to amplify the bank's problems ?

Can I suggest the title of this post be amended to avoid panic and scaremongering ?

The headline on ft.com is "Bank of England to rescue UK lender" - sounds like they need to be "bailed out" to me...

reg

 

[Guest111]

Believe me, it is very different. But clubman is right. Probably doesn't make a difference to the ordinary investor

Of course it's different but for most people it's in the realm of semantics. NR couldn't get funds on the wholesale markets because of the credit squeeze caused by this sub-prime fiasco. The BOE stepped in and gave them an "emergency loan". A lay person is going to see that as being bailed out.

 

[Jethro Tull]

good point. Unless they decide to increase the deposit rates for the extra risk of course!!!

standard risk v reward theory suggests this should happen but in the reall world I don't expect it to. Hence I will withdraw when i can as 4.5% isn't sufficient reward for me to take the risk. Every invester is different thats just my 2 cents.

 

[mobileme]

As mentioned elsewhere the UK depositor protection scheme which applies in the case of NR Ireland covers up to £37,500 or c. €54K (compared to €20K under the IFSRA depositor protection scheme) so anybody with less than that amount on deposit certainly should not panic if they are looking to withdraw and cannot right now and are worried about the worst case scenario.

Clubman, is it clear if this amount is per person or per account? We have a joint account so is double the amount covered?

 

[Sunny]

Of course it's different but for most people it's in the realm of semantics. NR couldn't get funds on the wholesale markets because of the credit squeeze caused by this sub-prime fiasco. The BOE stepped in and gave them an "emergency loan". A lay person is going to see that as being bailed out.

Which is exactly what I said

 

[z109]

But consider this. NR had to go to the BoE because the big boys (the MM) were no longer prepared to lend to it. If its not good enough for the big boys why should the little people continue to deposit with them.

As I understand it, the BoE emergency funds rate is lower than the LIBOR rate (the London interbank lending rate - the rate banks lend at to each other). So it is cheaper for NR to get money from the BoE than from other banks. However, what we don't know is the rate other banks have been quoting to NR (i.e. how much risk they see in a loan to NR), nor do we know if other banks were prepared to loan to them at all.

 

[dieter1]

shocked at the reaction of some people on this board, i.e. taking their money out at 5.30am etc. Its amazing how jumpy people are regarding these things. Do people know that they have lost 10% (at least) in the value of their homes this year alone. If people realised the true figure of how much value they have lost in their homes would they react the same way? Worrying for the irish economy that people are reacting like this, it just goes to show how nervy people are.

 

[LexLuthor]

(Just made a withdrawal over the phone using the dublin number. No point in ringing the helpline number - they cannot access irish accounts.)

 

[Maine]

I'd be inclined to agree not to panic. Not because of strengths of balance sheets or anything like that but because the BoE has decided not to let the unthinkable happen, having started the support process it is hardly going to stop.

But consider this. NR had to go to the BoE because the big boys (the MM) were no longer prepared to lend to it. If its not good enough for the big boys why should the little people continue to deposit with them.

Agree. IMO NR will have been scrambling for past 2 months to get funding almost at any cost from anywhere and that possibly includes the Chinese and Middle East investors. They knew that going to BoE would be the end of their current business model. They have probably even tried to sell themselves in the past week or two.

NR would have collapsed were it not for the fact they are too big and the fallout in the UK property, consumer and banking market would be massive.

The BoE should have nailed the UK property market 2 years ago but they missed the boat.

The ECB has raised rates and taken the flak for it however it is the BoE reputation which is in ruins today.

For example are they going to bail out banks for ever more, are some banks BoE protected or are some not

 

[Guest111]

On that €54K figure...is it 90% or the full amount?
Plus, presumably they only cover your principal and not the interest foregone in which case people should worry as why have it there in the first place?

 

[Sunny]

The BoE should have nailed the UK property market 2 years ago but they missed the boat.

The ECB has raised rates and taken the flak for it however it is the BoE reputation which is in ruins today.

For example are they going to bail out banks for ever more, are some banks BoE protected or are some not

The BOE rates are alot higher than ECB rates so they have been trying to 'nail' the property market.

Why is the BOE reputation in ruins? It did what it is supposed to do.

This is where it important to differentiate between bailing out and what the BOE did yesterday. The BOE have said this week they will provide liquidity to any financial institution that needs it but will not bail out any insolvent bank. Germany has bailed out two banks in the past two months. The BOE gave Northern Rock a loan. They expect to be paid back

 

[eamon]

The login section of the web site is timing out so call the Dublin number and you can close your account over the phone. They'll EFT the money to the account from which it was recieved or they'll post out a cheque. It's too late today for same day EFT.