Northern Rock - how badly could foreclosures hit it?

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ionapaul

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Hi all,

I have been quite pessimistic regarding the global economy for a few years and believe rough times are ahead, so last year moved 50% of my net worth from US equities to cash. Most of this is currently resting in a Northern Rock Demand Online account. My question is: if the UK (or Europe, or the entire western world) sees a recession, a subsequent rise in unemployment and consequently a rise in foreclosures, how badly would Northern Rock be hit? I have heard that the majority of its business is mortgages. Could an ongoing credit crunch adversely affect my savings there?
If we see a bout of deflation for a few years and cash is king, where is the safest place to keep it?

-Paul
 
Hi ionapaul, I think yours is quite a bit of a "philosophical" question that cannot find a certain answer... The great John Maynard Keynes used to say in times of war/huge recession the safest place to put the savings was "under the mattress"...

But are we all so pessimistic nowadays?
 
Of course you can't find a certain answer, but hopefully there are some indicators out there. What I would be interested to know is the relationship between NR that operates in ROI and UK. Is NR UK a parent company? Are they both the same company? Are they sister companies? What effect would insolvency in NR UK have on it's ROI operations etc?

Unfortunatly I don't have any answers, but that might be one place to start.

As to NR's exposure to dodgy mortgages in the UK or all the sub-prime CDOs etc from the US, I'm not sure if the public can get any insight into this unless there is some serious crisis forcing NR to issue a profit warning.
 
Persius said:
Is NR UK a parent company? Are they both the same company? Are they sister companies? What effect would insolvency in NR UK have on it's ROI operations etc?
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Their [broken link removed] describe the Irish Branch as part of Northern Rock plc retail funding franchise. No mention of separate companies for the Dublin branch. Their irish deposits on 31 Dec 2006 were STG£1,520 million.
It says the Guernsney branch is in a subsidiary company.
 
Northern rock is regulated by the irish financial services authority so basically your savings have the same protection as any deposit account in ireland. That means your deposit account is covered by the government up to 20,000 euros any savings above this level are not covered.
 
In that case, if one wanted to be 'extra safe' with regards their savings, one could spread the (admittedly very low level of risk!) by opening accounts with NR, Rabobank, etc...and putting a maximum of 20,000 euro in each?
 
if this becomes an issue we will be all running for the hills - it wont be your deposit you'll need, it will be a gun and some survival skills.
Northern Rock are bigger than BOI
 
ionapaul said:
In that case, if one wanted to be 'extra safe' with regards their savings, one could spread the (admittedly very low level of risk!) by opening accounts with NR, Rabobank, etc...and putting a maximum of 20,000 euro in each?
Click to expand...

90% of savings up to a max of 20,000 per person.

More details at : [broken link removed]

Towger
 
Jeee... I'm having a panic attack... But sorry how do I know how NR is doing? From the stock market only sorry? Or are there any quarterly reports from the company?
 
for those that have decided to cut down to 20,000 where are you going to invest the rest of your money?
 
90% of savings up to a max of 20,000 per person.

More details at : [broken link removed]
Click to expand...

This doesn't apply. NR are regulated by the UK FSA and "passported" into Ireland under EU regulations. Irish NR depositors are protected by the UK FSA scheme, which is similar to the Irish one but (IIRC) slightly more generous.
 
Does the 90% of savings up to €20,000 apply to An Post? Their saving bonds and saving certificates are 'state guaranteed.' Does this mean An Post savings are totally safe? By the way the rates on saving bonds and saving certs, which are tax free, have improved lately but still not as high as Rabo, NR, First Active, Anglo etc.
 


An Post bonds are like lending to the government so yes they are totally safe. Unless Ireland goes bankrupt
 
MugsGame said:
This doesn't apply. NR are regulated by the UK FSA and "passported" into Ireland under EU regulations. Irish NR depositors are protected by the UK FSA scheme, which is similar to the Irish one but (IIRC) slightly more generous.
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do you have a link about the details of this scheme? I have a sizable whack of my net assets deposited in NR and am probably completetly over reacting but would be lying if I said this wasn't worrying me.
 
I believe Northern Roack have sold on a lot of their debt and therefore their exposure is small enough. However the issues seems to be that the people who would normally buy the debt from Northern Rock are now exposed and also have no cash. As a result NR have had to go to the wholesale market to raise cash.

If they can't get it on the wholesale market the other option ther have to raise liquidity is to get more deposits. To get more deposits they will have to raise the rates they are paying for them.

So far form running for the hills on NR I would expect that there is a chance that deposit interest rates will become even more attractive over the next few weeks as NR and everyone else try to get cash in.
 
Their moody's credit rating is Aa3 but their credit default swap implied rating is only Ba1.

A friend of mine trades credit derivatives in Dublin and told me that its 'unusual' for to see credit default swaps being traded on Northern Rock. Also what they are trading at is pretty wide for a financial instituton according to him.

According to conventional risk/return theory surely their deposit rates should increase to counter this?
 
do you have a link about the details of this scheme?
Click to expand...

As at 2000 the [broken link removed] was
£18,000 (90% of £20,000)
Click to expand...
though there was talk then of raising this to
£31,700 (100% of £2,000 and 90%
of £33,000)
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either of which is significantly more than the Irish scheme.

However... I think there was a case a few years ago where Irish insurance customers were compensated under the UK FSA insurers scheme, and it took Mary Harney's intervention to get the FSA to payout to Irish policyhoders. Even then, the FSA may have tried to match the equivalent Irish cover, rather than payout on the higher limits. So it may be greyer than I made out above. Not that I think NR customers will ever be in a position to find out definitively.
 
Maybe so but the bottom line is I've been reliably informed that credit default swaps on securities issued by a company with NR's rating should be trading at about 50 basis points. Was trading at rougly 3 times that on friday and 2.5 times that monday.
 
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