Northern Rock bailed out by Bank of England

Maine said:
For example are they going to bail out banks for ever more, are some banks BoE protected or are some not
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I think the bank decides if there is a risk of it causing systemic contagion then it will act. Barings was allowed to fail, for example.
 
While I personally consider this of purely academic interest at the moment...
mobileme said:
Clubman, is it clear if this amount is per person or per account? We have a joint account so is double the amount covered?
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Andy Doof said:
On that €54K figure...is it 90% or the full amount?
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See the [broken link removed] for answers to both of these questions:
Deposit Protection Scheme

Northern Rock is a member of the UK Financial Services Compensation Scheme (the ‘Scheme’) established under the
UK Financial Services and Markets Act 2000. Payments under the Scheme are limited to 100% of the first £2,000 (at the
prevailing Euro equivalent) of a depositor’s total deposits with the bank and 90% of the next £33,000 (at the prevailing
Euro equivalent) resulting in a maximum payment of £31,700 (at the prevailing Euro equivalent). The Scheme limit
relates to each depositor for their combined deposits held with Northern Rock and not for each account. Further details of
the Scheme are available on request.
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My mistake with the €54K figure as I thought (off the top of my head) that the GPB£ amount was £37,500 and not £31,700 (c. €46K). :o
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?
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I think it covers capital only.
 
Jethro Tull said:
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.
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I have the majority of my assets in this basket and I'm not particularly happy right now .. but not overly worried either.

But your right about the risk Vs return .. its simply not worth it ..I mean if I wanted to tolerate even this level of risk, I'd be looking for a much better potential return .. move it out asap I think ..
 
Sunny said:
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.

The BoE have been behind the curve in raising interest rates in the Uk and allowed property market to zoom upwards in past 2 years.

What the major banks in the UK / overseas are saying is that they think NR is full of sub prime loans and potential bad debts hence they will not lend to it.

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
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When no one else in the commercial world will loan you money and you have to go to the BoE knowing this will result in q's outside your bank then IMO that is a bail out to prevent collapse. NR has been aggressive in taking market share from the other banks at low prices.

No one is buying NR assets even at a discount. If NR had to sell on to other banks its loan today it would be getting far less than 100p for every £1 in assets held. If it could have sold them it would.

The BoE itself has in past stated that lending was reckless but it should have raised rates sharply to choke off the property mania of 2005 and 2006 in the UK.

This credit crunch started in June so NR did not even have facilities to keep itself going for 3 months.

The BoE will get its money back because it will have to keep loaning NR money to get them to a point where some bank will buy them. Today NR will be massively losing deposits which the BoE will have to replace.

Will the BoE "loan" money to all other sub prime lenders
 
can anyone give the Dublin number they are able to get through on please, I've been trying 01 6020324 which is engaged most of the time, when I do get through theres just music on the other end.
 
Nothern Rock bailed out by BOE

I have €22K in NR Demand account I am very worried. Do I need to take this money out in case the bank collapses?
 
Things are getting worse with their web-site. I'm now getting connection resets before even clicking on the "login to your online accounts link".

It's strange that some people seem to be getting through on the phone but not on the Internet. You'd think the service rate of an automated system would be higher than a few people on the phones.
 
Maine said:
When no one else in the commercial world will loan you money and you have to go to the BoE knowing this will result in q's outside your bank then IMO that is a bail out to prevent collapse. NR has been aggressive in taking market share from the other banks at low prices.

No one is buying NR assets even at a discount. If NR had to sell on to other banks its loan today it would be getting far less than 100p for every £1 in assets held. If it could have sold them it would.

The BoE itself has in past stated that lending was reckless but it should have raised rates sharply to choke off the property mania of 2005 and 2006 in the UK.

This credit crunch started in June so NR did not even have facilities to keep itself going for 3 months.

The BoE will get its money back because it will have to keep loaning NR money to get them to a point where some bank will buy them. Today NR will be massively losing deposits which the BoE will have to replace.

Will the BoE "loan" money to all other sub prime lenders
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Northern Rock is not a sub prime lender but yes they will lend money to any bank with liquidity problems. The BOE has been raising rates including a couple of surprise moves and 50bp moves and are not behind the curve. What did you want them to do? Go from 4% to 10%. And banks aren't worried about Northern rocks sub prime exposure per se. The market knows Northern Rocks business model and knew they were struggling to raise funding at good levels so banks started reducing credit lines to them because they could see something like this happening

Northern Rocks business model is at fault because it is heavily reliant on wholesale funding. However, if you asked anyone last Xmas if they could have forseen the 3mth interbank market drying up, Libor reaching record highs, and the securitisation market vanishing at the same time they would say no. Anyone who says otherwise is lying.

Northern Rock is not insolvent, it is not bankrupt. Its assets are performing as well as anyone elses. It has bought itself some time to try and get through this turmoil and yes I do believe someone will take them over and it will make sense from a business presepctive. Whats wrong with that?
 
cannot get through to any of the irish NR phone numbers, and the website des not let me get past entering the password before it times out!

I think they have blocked the website to prevent the panic withdrawls!
 
I think we can take it that the website is swamped and is reacting v. slowly as it has been all morning, and we should refrain from jumping to conclusions.
 
GeneralZod said:
Things are getting worse with their web-site. I'm now getting connection resets before even clicking on the "login to your online accounts link".

It's strange that some people seem to be getting through on the phone but not on the Internet. You'd think the service rate of an automated system would be higher than a few people on the phones.
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their website is prety slow at the best of times but I'm sure this 'run' of people logging on and/or withdrawing isn't helping things.
 
So your first €3000 is completely covered if NR collapses while 90% of the next €49,500 is covered. Plus you forego the interest you would have earned. Therefore all but the smallest investors would lose money if NR collapsed. Also, as this is generally people's savings it is not money they can afford to lose so talking about risk profiles may be irrelevant. Surely people who leave money on deposit are the most risk averse of all.
The responsible advice for anyone with savings with NR is to withdraw them immediately. Will the bank go bust? Probably not. Will investors make a killing on NR shares? Probably. But none of us are Warren Buffett. The fact is savings with NR are less safe now than they were before. If it were my money, I'd withdraw it.
 
Andy Doof said:
So your first €3000 is completely covered if NR collapses while 90% of the next €49,500 is covered. Plus you forego the interest you would have earned. Therefore all but the smallest investors would lose money if NR collapsed. Also, as this is generally people's savings it is not money they can afford to lose so talking about risk profiles may be irrelevant. Surely people who leave money on deposit are the most risk averse of all.
The responsible advice for anyone with savings with NR is to withdraw them immediately. Will the bank go bust? Probably not. Will investors make a killing on NR shares? Probably. But none of us are Warren Buffett. The fact is savings with NR are less safe now than they were before. If it were my money, I'd withdraw it.
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Totally agree. Not as if their rates are so much better than elsewhere! It just doesn't have to be done this afternoon
 
yoganmahew said:
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.
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Something doesn't add up here. If NR have discovered a cute way to get cheap money from the BoE why are their profits under threat?;)
 
Okay - I'm aware that Northern Rock is solvent, not likely to go bankrupt, hugely profitable, just needed a temporary dig-out from the Bank of England to get over a cash-flow problem etc.

But if this thread is representative of NR customers as a whole, it looks like there will be a HUGE withdrawal of deposits.

Could this in itself cause the bank to collapse?

In other words - could (possibly misguided) negative publicity started by the BofE news be self-fulfilling? That would be ironic.
 
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