i don't think it is as bad as being made out. Its just that Northern Rock get their funding from different sources to other lenders.
a guy from the Stock Exchange was saying that it was all being blown out of proportion - i don't know anything about this stuff though (although i'm trying to educate myself) so don't listen to me.
[cite]Posted By: Gump[/cite]If Northern Rock were in any serious trouble the Bank of England would not have lent them the money.
That's where this is getting blown out of proportion... the BoE havent lent them a penny yet... it's just Northern Rock asking the BoE to prepare for the possibility...
Actually Ledge, I think if Northern Rock went bust they get bought up by some rapacious bigger building society like Nationwide - who then precede to asset strip and make half of NR staff redundant.
Then they raise my mortgage by 1% to pay for the administrative cost of their empire building.
Will I be a winner?
Nope, don't think so - the systems not designed for that............
People are daft. There is no way that Northern Rock depositors will lose their money. I'm thinking of buying shares in them. They were off 32% today. Buy em whilst their price is low. The problem is a short-term liquidity crisis brought about by interbank lending drying up. It hits NR harder as they borrow most of the money they lend whereas most banks lend money from their depositors. The cash has temporarily dried up as banks try to bottom out the risks eminating from the USA Sub-prime mortgage market. Once these risks have been quantified and factored in, then liquidity will return. Thats why the Bank of England stepped in, to create liquidity during this time. It's part of their role, they very rarely do it, but the system is there to keep the market going.
People are daft. There is no way that Northern Rock depositors will lose their money. I'm thinking of buying shares in them. They were off 32% today. Buy em whilst their price is low.
................
There may well be a bounce once the BoE injects some money to help them out, but that will be a sticking plaster over a gaping flesh wound. The weekend papers will be all over this story and that might persuade more people to sell on Monday and Tuesday.
Look at some of the other banking shares - Lloyds, Barclays, RBS etc, they all fell today, following Northern Rock down rather than because of any inherent weakness in their balance sheets or in the banking sector. The wiser bet would be to buy shares in one of them, they don't have the same liquidity problems that are hitting Northern Rock and will therefore bounce back faster. There might be some money to be made in Northern Rock, but there's also some money to be lost.
Bing Addick is spot on. The only issue with the cash withdrawals is that the borrowing costs on Northern rock go up slightly not enough to wipe off 32% of the value of the business.
The Bank of England will advance cash secured by the mortages customers have secured in turn by the houses of their mortgage customers. What you have here is a liquidity problem which should last for a few months. Northern Rock is one of the better quality mortgage lenders and doesn't do sub prime.
It would take house prices crashing together with mass unemployment to cause a real problem. Then we are all knackered anyway.
I am not sure Barclays are a great investment. Their customers are pretty hacked off and their staff even more so. IMO They have lost the plot in the UK and are focussing on aquiring expensive overseas assets.
Bing is right, people should hold on. Massive queues outside Northern Rock banks is going to spread fear throughout the general public and the last thing banks need now, especially NR, is people taking their money off of desposit. As Bing says, once the risks of the sub-prime fallout have been quantified and worked out then liquidity will return. Until then people should hold on.
I think it's worth noting that the share price of NR had been falling hard, long before the liquidity squeeze that began in July (its shares were above £12 not so long ago). The prices of its competitors (especially Alliance & Leicester and B&B had also been falling). Presumably this was on the back of concerns that its solid mortgage book might be nothing of the sort (after all NR were known as one of the most aggressive lenders on the High Street, typified by its infamous 125% mortgages).
Before blaming the US subprime mortgage sector (the size of which was driven in part by demand for higher yield by global institutions, many of them British), it is worth asking if the same phenomenon doesn't exist in the UK, albeit under a different name (buy-to-let).
The subprime crisis began when house prices stopped rising in late-05. Many subprime loans were only viable so long as prices kept rising (permitting refinancing when 'teaser' interest rates expired). Without the scope to refinance, many borrowers would have a serious cashflow problem (hence the wave of defaults, although it's worth noting 'only' 15% of subprime borrowers are failing to pay).
Similarly in the UK, the phenomenon of amateur buy-to-let increasingly focused on the glut of modern city flats, also surely only remains viable so long as prices continue to rise. Otherwise the negative monthly cashflow most of them face (even in the absence of rental voids) outweighs the hope for capital appreciation. Potential result: a wave of selling and defaults, just like in the US. The only difference is that it isn't called 'subprime'.
I think it's hopeful to consider it a mere short-term liquidity problem.
The fact that it's the pensioners queing up in droves to get their money out is telling. They're old enough to remember that every time a bank has gone under the savers are always assured that all is ok and there's no risk to deposits right up to the time that the doors are locked and the accounts frozen. Not saying it's going to happen but you can take banks statements at a time like this with a pinch of salt.
I do agree with Newyorkaddick that this is probably the start of something more long term but I still think the signals being sent out in the media and the rush of people to get money out of the banks at the moment is going to cause even more problems than the situation requires. Panic will cause chaos throughout the economy, but all said the safest place to put your money right now is with the government.
The word is a £1 billion has been withdrawn in one day. That is going to have an effect and again that money has to go somewhere, other banks/building societies will be benefitting from increased cash deposits.
Of course NR has enough cash to honour its commitments - since the Bank of England is guaranteeing it - it's the sheep taking their money out who cause the problem plus whichever goon starts the next rumour on another institution... The brand is probably terminally damaged so someone will snap up the mortgage book now that the share price is down (buying opportunity anyone?!)
I think we will know in a month if there is any real fall out when other short term lending becomes due but then again the Bank of England are saying they will step in if the underlying books are sound ... does anyone in the know have explanations as to why banks are not lending to each other? and how long it will take the back office boys to decide the exposure?
And as for 125% mortgages, I think these were just 100% + a personal loan - from what I've read today the US sub prime problems were caused by stalling prices and over borrowing (as per NYA) plus mortgage broking on fat fees to ninjas (no income, no job, no assets) - which is just Leeds United all over again lol.
In this country you can get self status loans for 1% above the norm but you have to put down 20% - 30% equity - so the problem is restricted to schemes such as what may have happened in Thamesmead with solicitors, developers and purchasers conspiring to inflate the purchase price and then put in multiple mortgages
so nothing to fear except fear itself (and people touting gold of course!)
Comments
a guy from the Stock Exchange was saying that it was all being blown out of proportion - i don't know anything about this stuff though (although i'm trying to educate myself) so don't listen to me.
They sponsor Newcastle don't they?
Viglen
Redbus
allsports.....
No Woolwich anymore though, not really - just the Barclays brand for mortgages, nothing more.
That's where this is getting blown out of proportion... the BoE havent lent them a penny yet... it's just Northern Rock asking the BoE to prepare for the possibility...
My point was, that with the banks been a bit twicthy at the moment, wouldn't there be concerns about lending anyone money to spend on a Football club?
If they went bust does that mean I won't have to repay my mortgage? *big grin & heart brim full of hope*
No, thought not.
Then they raise my mortgage by 1% to pay for the administrative cost of their empire building.
Will I be a winner?
Nope, don't think so - the systems not designed for that............
................
There may well be a bounce once the BoE injects some money to help them out, but that will be a sticking plaster over a gaping flesh wound. The weekend papers will be all over this story and that might persuade more people to sell on Monday and Tuesday.
Look at some of the other banking shares - Lloyds, Barclays, RBS etc, they all fell today, following Northern Rock down rather than because of any inherent weakness in their balance sheets or in the banking sector. The wiser bet would be to buy shares in one of them, they don't have the same liquidity problems that are hitting Northern Rock and will therefore bounce back faster. There might be some money to be made in Northern Rock, but there's also some money to be lost.
The Bank of England will advance cash secured by the mortages customers have secured in turn by the houses of their mortgage customers. What you have here is a liquidity problem which should last for a few months. Northern Rock is one of the better quality mortgage lenders and doesn't do sub prime.
It would take house prices crashing together with mass unemployment to cause a real problem. Then we are all knackered anyway.
I am not sure Barclays are a great investment. Their customers are pretty hacked off and their staff even more so. IMO They have lost the plot in the UK and are focussing on aquiring expensive overseas assets.
Before blaming the US subprime mortgage sector (the size of which was driven in part by demand for higher yield by global institutions, many of them British), it is worth asking if the same phenomenon doesn't exist in the UK, albeit under a different name (buy-to-let).
The subprime crisis began when house prices stopped rising in late-05. Many subprime loans were only viable so long as prices kept rising (permitting refinancing when 'teaser' interest rates expired). Without the scope to refinance, many borrowers would have a serious cashflow problem (hence the wave of defaults, although it's worth noting 'only' 15% of subprime borrowers are failing to pay).
Similarly in the UK, the phenomenon of amateur buy-to-let increasingly focused on the glut of modern city flats, also surely only remains viable so long as prices continue to rise. Otherwise the negative monthly cashflow most of them face (even in the absence of rental voids) outweighs the hope for capital appreciation. Potential result: a wave of selling and defaults, just like in the US. The only difference is that it isn't called 'subprime'.
I think it's hopeful to consider it a mere short-term liquidity problem.
S.
Fancy trusting Northerners with your money eh!
http://www.telegraph.co.uk/money/main.jhtml;jsessionid=0L5NL03NSLXUBQFIQMGCFF4AVCBQUIV0?xml=/money/2007/09/16/cnrock116.xml
The article does say that Northern Rock has suficient cash to honor all it's commitments to savers
The brand is probably terminally damaged so someone will snap up the mortgage book now that the share price is down (buying opportunity anyone?!)
I think we will know in a month if there is any real fall out when other short term lending becomes due but then again the Bank of England are saying they will step in if the underlying books are sound ... does anyone in the know have explanations as to why banks are not lending to each other? and how long it will take the back office boys to decide the exposure?
And as for 125% mortgages, I think these were just 100% + a personal loan - from what I've read today the US sub prime problems were caused by stalling prices and over borrowing (as per NYA) plus mortgage broking on fat fees to ninjas (no income, no job, no assets) - which is just Leeds United all over again lol.
In this country you can get self status loans for 1% above the norm but you have to put down 20% - 30% equity - so the problem is restricted to schemes such as what may have happened in Thamesmead with solicitors, developers and purchasers conspiring to inflate the purchase price and then put in multiple mortgages
so nothing to fear except fear itself (and people touting gold of course!)