Northern Rock bailed out by Bank of England

There has been some suggestion that this a mere technical issue. And that is true because the BoE has allowed NR off the hook.

NR were borrowing short and lending long hoping the short term facilities could endlessly be rolled over. If you or I did that it would be irresponsible. :mad:

Imagine the BoE did not bail out NR (that is the correct expression). NR would be in serious serious trouble - almost certainly heading for liquidation (barring a take-over). The liquidator would arrange with depositors to wait a few years until the mortgages start to get paid back, though presuming the mortgages are sound that would probably be the worst of it.

However, BoE did bail them out. IMHO depositors are actually safer with NR than ever. As I said before BoE are not suddenly going to reverse position and abandon NR.

The message is clear, forget about ratings, forget about balance sheets - deposit with a bank whose collapse would be unthinkable to the Government. I think in Ireland that really only means the Big Two.
 
Sunny said:
It wasn't cheap. Its a penal rate much higher than libor.
Click to expand...
No it wasn't cheap, base rate +1% = 6.75%

The latest 3 month LIBOR rate I can see on the BBA website (6 September) is 6.87750%. So it is lower than LIBOR, unless LIBOR rates have come down in the last week?

Anyway, using LIBOR rates presupposes that there are other banks willing to lend to NR at that rate.
 
Last edited by a moderator:
Harchibald said:
There has been some suggestion that this a mere technical issue. And that is true because the BoE has allowed NR off the hook.

NR were borrowing short and lending long hoping the short term facilities could endlessly be rolled over. If you or I did that it would be irresponsible. :mad:

Imagine the BoE did not bail out NR (that is the correct expression). NR would be in serious serious trouble - almost certainly heading for liquidation (barring a take-over). The liquidator would arrange with depositors to wait a few years until the mortgages start to get paid back, though presuming the mortgages are sound that would probably be the worst of it.

However, BoE did bail them out. IMHO depositors are actually safer with NR than ever. As I said before BoE are not suddenly going to reverse position and abandon NR.

The message is clear, forget about ratings, forget about balance sheets - deposit with a bank whose collapse would be unthinkable to the Government. I think in Ireland that really only means the Big Two.
Click to expand...

If Northern Rocks starts announcing massive writedowns on its assets, announces losses and announces that its capitalisation is in trouble, the BOE will not save it if it sticks to what it said earlier in the week. They have not provided Northern Rock with a bottomless pit of money. They are taking collateral on the loans so NR can only borrow up to what it can provide adequate collateral for. The BOE has done its job. It has acted as the lender of last resort like it is supposed to. The procedures were put in place for this eventuality back in 1998.
The 'too big to fail' argument about banks is very topical at the moment.
 
Another Angle...

For a moment - lets forget all the news about NR's cashflow problems, and BOE having to go in to prop it up... and lets forget the speculation on this site and elsewhere about whether this could or could not become a meltdown.

If you were in a position today, or even early next week, where you absolutely HAD to have €100k transferred from your online NR account to another bank - say it's the due date for a loan repayment, or you had written a huge cheque and your overdraft didn't cover it - then the fact of the matter is this - today you would be in deep doo-doo. Because the bank you trusted your money with made a bags of things.

From that point of view, based on the facts on the ground right now, NR is bad news, and I can't see why anyone would leave their funds there.
 
yoganmahew said:
No it wasn't cheap, base rate +1% = 6.25%

The latest 3 month LIBOR rate I can see on the BBA website (6 September) is 6.87750%. So it is lower than LIBOR, unless LIBOR rates have come down in the last week?

Anyway, using LIBOR rates presupposes that there are other banks willing to lend to NR at that rate.
Click to expand...

Where did you get the 1% penalty rate? I haven't seen it being publically announced. All I have heard is at a 'punitive rate'
 
Harchibald said:
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?;)
Click to expand...
As they are getting money at 6.75% from BoE on mortgages that are paying around the 6% mark, they are, er, losing money!
 
Last edited by a moderator:
Sunny said:
Where did you get the 1% penalty rate? I haven't seen it being publically announced. All I have heard is at a 'punitive rate'
Click to expand...
You are quite right. My apologies - I had assumed the emergency funds rate (base +1%) - I also have the base rate wrong - it should be 5.75% - I will amend above.
 
yoganmahew said:
As they are getting money at 6.75% from BoE on mortgages that are paying around the 6% mark, they are, er, losing money!
Click to expand...

But, according to yourself, they would lose more if they could continue to fund from the MM so why did the share price fall 20% when they wangled this cheaper source of funds from the BoE?
 
Northern Rock landed me a bit in the dog doo today I must say. I needed to transfer €2K out of my account to pay for my flight to Australia next January. All day and no access. It might only seem like chicken feed to some people but is a right pain in the backside because I need the funds. Thats why I dont think I will stay with them long term and take my €25K and put it somewhere I can get at it if I need it.
 
Harchibald said:
But, according to yourself, they would lose more if they could continue to fund from the MM so why did the share price fall 20% when they wangled this cheaper source of funds from the BoE?
Click to expand...
Because they are losing money to get over the current market conditions.

The would normally be able to sell their mortgage debt as asset backed securities. They can't do that, because nobody's buying. They would also be normally able to borrow money from other banks at LIBOR rates. They can't do that, either because it is costing them too much or nobody will lend to them. To keep liquid, they have to have cash, so they have gone to BoE.

The share price has, IMO, fallen 27% (as of 15 minutes ago) because pictures of people queuing outside a bank looking for cash is not condusive to confidence! And a bank is partly (primarily?) built on confidence.
 
Jethro Tull said:
Must say this option had also dawned on me but wasn't sure if it could be done.

What happens re. interest accrued to date if you withdraw ALL your cash?
Click to expand...

Great question! In my opinion nothing... You just get your interest at the end of the year (unless big collapses but I am in the "do not panic" team here)... Or am I wrong sorry?:confused:
 
I'm starting to think that the slow(or dead) website is a ploy by NR to stop the flow on money leaving its accounts.

9.00am this morning, a lot people start work and log in after the news...so yes expect some slow down.

How now? How many customers have already logged in - checked there account and transferred money out, the traffic should be less all the time.
The amount of information being passed to/from server is not huge....could NR deliberately slowing down the website?????
 
MandaC said:
Northern Rock landed me a bit in the dog doo today I must say. I needed to transfer €2K out of my account to pay for my flight to Australia next January. All day and no access. It might only seem like chicken feed to some people but is a right pain in the backside because I need the funds. Thats why I dont think I will stay with them long term and take my €25K and put it somewhere I can get at it if I need it.
Click to expand...

Thats pretty crap. Keep trying. It will work eventually!

I think we should pause for a moment and think of the type of day their frontline staff are having on a Friday :eek:
 
Giggsey said:
I'm starting to think that the slow(or dead) website is a ploy by NR to stop the flow on money leaving its accounts.
Click to expand...

I doubt it. I used to work in IT for an Irish bank supporting servers responsible for online transaction processing. I can quite easily imagine that systems which are specced for "normal" levels of traffic would be overwhelmed by the demand on a day like today.

Not, I admit, any consolation to those trying to access their cash. I myself have a smallish sum on deposit with NR and I haven't even bothered trying to log in today, although I probably will move the deposit after this.
 
Godfather said:
Hi guys,

sorry but is there anyone still keeping a bit on NR?:confused: :confused: :confused: :confused:

Or are you all closing sorry? My God...:(
Click to expand...

If and when I ever get logged in I plan to leave €1000 in each of my accounts.

That is guaranteed. I don't want to go through the ID hassle of reopening accounts after NR is taken over/stability returns.

I'm going to move the funds into FA and buy some quinn-life funds instead.

If the funds are going to be subject to such risk I might as well have the potential of some return.:)
 
GeneralZod said:
If and when I ever get logged in I plan to leave €1000 in each of my accounts.

That is guaranteed. I don't want to go through the ID hassle of reopening accounts after NR is taken over/stability returns.
Click to expand...

General, you literally read my mind... :D That's why since 2 weeks ago I left around 1000 Euro there...:D
 
I have just got through to NR on the phone, and transferred some of my cash to my bank account. I haven't closed my account, nor will I for the present, but will spread my money around a bit more.

I was also told that the online system is now unavailable due to the volume of people logging on. This should eventually be sorted out.
 
You must log in or register to reply here.
Back
Top