Seriously_Red, I could write for hours about the US subprime crisis, but I was questioning whether we are being a little hopeful if we think that some of the same factors that caused the meltdown there, don't also exist in the UK.
It is hard to believe that UK house prices could rise to 6-7x incomes or rental yields could be pushed as low as 4-5%, without there being a degree of rampant speculation which may (like in the US) be built upon a combination of extravagant lending, false certification and an absolute requirement that house prices continue rising.
The banks are not lending to each other because the collateral upon which such lending is typically based is now highly questionable (thanks initially to the subprime crisis, but now permeating through other apparently 'safe' assets). Hence the 'equilibrium' interest rates which would persuade a counterparty bank to lend to a competitior are unsustainably high. Thus in a form of Darwinism, it is the likes of Northern Rock that collapse first because their needs are the greatest thanks to the over-reliance upon the capital markets that are now frozen.
Okay, this isn't my specialist subject but as I have a Northern Rock mortgage, I am concerned.
NYA & S_Red ...... any idea as to how NR's crisis will affect those who have mortgages with them - and what happens (despite being at the moment underpinned by the Bank of England) should they collapse?
My limited knowledge on this suggests - less competition in the lending market (NR were very competitive in this area) will be an issue, combined with the general problem, and interests rates will mean less cheap mortgages. However house prices may not crash as people will want to hold on, rents may suffer a little.
N/R's products recently have always had good headline rates, but with some of the highest arrangement fee's in the industry- a good sign that they had cash flow issues. TBH- I haven't placed mortgage business with them for at least 12 months now due to these fees
I also think that one of the long term effects on this will be higher margins on rates. Example- Barclays were lending at BBR + 0.18%, free transfer costs- where is the profit in that?
But the media induced frenzy of people queuing to get their money out is quite sad really given the protection that is in place.
edit- Oggy, if they stop trading then someone will take over their book, they will have to honour existing contracts (this is suprising common, lenders like GMAC have always done this)
All a bit like wathcing 'It's a wonderful life' when there is a run on a bank, the panic is funny, but then these people are the types who voted for the Northern Rock to convert from a Building Society to a Bank, so the herd mentality is well and truely in them.
Stanmore maybe you have less than £35,000 on deposit but alot of us have considerably more than that. It's easy to be sanguine when when you don't have any chips on the table. Time to spread the cash around several banks me thinks.
[cite]Posted By: SantaClaus[/cite]Stanmore maybe you have less than £35,000 on deposit but alot of us have considerably more than that. It's easy to be sanguine when when you don't have any chips on the table. Time to spread the cash around several banks me thinks.
Northern Rock will get taken over by one of the big four soon, Lloyds TSB were having a sniff about last week, and I suspect the likes of HBOS and RBS are looking as we speak.
Thanks, Stanny. I guess the Government have various legislation to protect borrowers and investors pending a sale of the stricken business.
It's certainly a sign of the times in dumbed-down Britain that irresponsible media frenzy reporting can generate a panic kneejerk reaction by the public.
[cite]Posted By: SantaClaus[/cite]Stanmore maybe you have less than £35,000 on deposit but alot of us have considerably more than that. It's easy to be sanguine when when you don't have any chips on the table. Time to spread the cash around several banks me thinks.
You are right on both accounts- I don't have more than £35k on deposit- (Not giving too much away there) but if i did- i'd certainly have spread it around several banks.
Oh and WSS- maybe not £35k, but there are at least half a dozen people i know, including myself, who have just bought N/R shares
[cite]Posted By: SantaClaus[/cite]Stanmore maybe you have less than £35,000 on deposit but alot of us have considerably more than that. It's easy to be sanguine when when you don't have any chips on the table. Time to spread the cash around several banks me thinks.
invest it into Northern Rock shares
Put it all on an Addicks clean sheet. Safer than bricks and mortar.
[cite]Posted By: SantaClaus[/cite]Stanmore maybe you have less than £35,000 on deposit but alot of us have considerably more than that. It's easy to be sanguine when when you don't have any chips on the table. Time to spread the cash around several banks me thinks.
invest it into Northern Rock shares
Put it all on an Addicks clean sheet. Safer than bricks and mortar.
Actually, Leeeeeeeburn, at the moment I believe your money would be a better bet even in the Northern Rock........
I've just sold my house and had a nice return (280%) on my 1997 investment. I'm gonna stick my cash in a safe Government Bond and re-invest a later stage when there's a downturn or someone's desparate to sell cheaply. In the meantime....POP Glug, Glug, Glug
[cite]Posted By: Rothko[/cite]be a good day to be a mugger wouldn't it? Hang round the corner of a Northern Rock, and wait for said muppet to walk past with £50k
On GMTV this morning there was a woman on there who quite blatanly said in the camera - "i have just shy of a million in there, i need it out"
the whole thing should have been just a liquidity blip and quietly dealt with but now the chancellor has basically guaranteed northern rock the shit could hit the fan as more crap adds to the panic the media is stoking up...its a confidence thing and that confidence is being eroded...expect to be a lot poorer on paper...
Ask yourself what would happen in the current climate if a rumour went about that 1 of the big 4 banks was in trouble? I'm making sure my backside is covered asap.
Again, I wouldn't buy shares in Northern Rock right now. They've fallen another 30% today and the sellers are still outnumbering the buyers, plus the institutions are dumping their shares. In a day or so they might be worth a punt.
The problem with a takeover is that you won't get much premium to the price and because they have a large chunk of the mortgage market it might prevent a takeover from any of the big mortgage banks. Government rules are that no one single lender can have more than 25% of the market and the likes of Lloyds. barclays etc will go close to or above that.
In the meantime any buyer will conduct a bit of due dilligence beforehand - looking at the books and trying to ascertain exactly what Norther Rock's assets are and what the liabilities are, given the cash withdrawals the asset base will be difficult to ascertain and the liabilities will include a poisoned reputation. Any buyer of NR will be aware that they are potentially buying a lot of problems.
Oggy Red, it's obviously better to be a debtor of NR than a creditor right now. Your mortgage is an asset on their balance sheet and it is clear the company is either going to be sold (for peanuts) to a competitor, or will go into administration (and the assets will be sold off to someone eventually). Hence your mortgage will simply be transferred to the new owner and is due as normal.
On the subject of whether buying NR shares is a good trade, I suspect it is a 'falling knife.' It is always tempting to think a share is good value because its fallen >50% in two days, but before ploughing in it's worth remembering some simple maths....a share that falls 90% is one that falls 80%, and then halves again. You can easly get caught out, and don't forget the company is insolvent and the equity is worthless (without the BoE guarantee), and clearly it has no future as an independent company. Moreover, if it is bought it will have to be done without the ongoing BoE guarantee (otherwise the competitors of the purchaser would be outraged), further reducing the price it might capture. Its business model is completely flawed and by way of comparison, those US lenders who also lack a strong deposit base have similarly gone to the wall, or are heading that way (eg. Countrywide).
I do think it's curious though that no-one is questioning whether its appropriate, despite the good intentions to protect savers, that the BoE now owns tens of billions of aggressively-structured mortgages on its balance sheet (probably at the 'top of the market', at least for now). This has the potential to get very ugly for the UK taxpayer. If the truth be told, the best course of action would have been to allow NR to go under.
So anyone who has savings with Northern Rock and decides now is the right time to take them out is either "panicing" a "sheep" or a "muppet" according to some on here, eh?
I tell you what, if I had any more in there than the 2 or 3k guarranteed then it would be coming out straight away, and certianly I would be withdrawing anything over the 30k-odd 90% payout limit. It would be my money and I could do what the f*ck I liked with it. If it was potentially at risk - no matter who slight or unlikely that risk may be - then I would be looking to put it somewhere safer.
After all, in many cases this is peoples life savings we are talking about. If you had say £100k in there would you want to risk it - again, no matter how slight that risk - for no gain and when you had ample time to negate that risk? Of course not - and anyone else who says differently really does need their head testing in my view.
Off-It, in light of the BoE backing, they are clearly 'panicking' but when you're talking about people's life savings, it's hard to blame them for acting irrationally. I'd be more concerned about Bradford & Bingley and Alliance & Leicester right now, whose share prices are also falling hard and who also rely upon the wholesale markets to a large degree. It's not clear if the BoE will continue bailing out (or can afford to frankly....notice the weakness in the pound during the past two days).
There's probably a lesson in here for savers. Ultimately they are lending money to the bank they deposit their savings with, and it's now clear there's a world of difference between an old-fashioned mutual building society and the likes of NR. If the interest rates at NR were aggressively high (tempting the savers in) then now you know why. The usual rules about not putting your eggs in one basket probably apply to savings, as well as other investments.
I think people are probably aware that (subject to limits) their money is guaranteed and that they will get it. What is NOT guaranteed though is the timescale as to WHEN they will get it and therein lies the problem.
A lot of people will have had their money in the Northern Rock equivalent of an "instant access" account. By definition they therefore want to withdraw their money when THEY want it not at some indeterminate time in the future when bureaucratic procedures and obstacles have run their course.
In short you have the "rich" (more than £35K say) withdrawing and the poor who possibly need instant access to their money on a "rainy day" withdrawing.
It is perfectly understandable to me why people are reacting in the way that they are to this crisis.
It doesn't seem that irrational to me NYA. As I said, I have no direct personal interest in this as I do not bank with NR (although am clearly interested in the wider issues) but if my dough was in there then I think my decision - in the unbiased rational state I am in now - would still be to take it out. That's not panic on my part, it's what I'm saying I would do in that position thinking as logically and rationally about it as I am now. As you say yourself, who knows how long the BoE backing will/can/should go on for.
Luckily I don't have that problem just now, but I don't see how people on here - some of whom probably haven't got a pot to piss in themsleves - can blandly crticise people for doing what they believe to be right for themselves and their families.
the joke is people are taking their money out of northern rock (the depositors of which the chancellor has said he will back) and putting their money in another instituton (which must be affected by the same problems nr have - every institution will have long term assets on their books that now may not be worth what they thought and a need to borrow in the interbank, if not everyday, to fund them) which hasn't been guaranteed by the chancellor...
[cite]Posted By: LenGlover[/cite]
It is perfectly understandable to me why people are reacting in the way that they are to this crisis.
Spot on Len - particualrly that last bit. People can call it "panic" if they like, but I defy anyone on here to act any differently if they were in the same boat.
[cite]Posted By: ltgtr[/cite]the joke is people are taking their money out of northern rock (which the chancellor has said he will back) and putting their money in another instituton (which must be affected by the same problems nr have - every institution will have long term assets on their books that now may not be worth what they thought and a need to borrow in the interbank, if not everyday, to fund them) which hasn't been guaranteed by the chancellor...
Which is why NS&P is looking particualry attractive right now.
[cite]Posted By: ltgtr[/cite]the joke is people are taking their money out of northern rock (which the chancellor has said he will back) and putting their money in another instituton (which must be affected by the same problems nr have - every institution will have long term assets on their books that now may not be worth what they thought and a need to borrow in the interbank, if not everyday, to fund them) which hasn't been guaranteed by the chancellor...
Which is why NS&I is looking particualry attractive right now.
[cite]Posted By: Rothko[/cite]So was it a mistake for the likes of Bradford and Bingley, Allance & Leicester and Northern Rock to convert from being a Mutal to a PLC?
That's a totally different question.
Sticking to theme, if you had £100k in NR Rothko would you be happy to leave it there in the current climate?
Comments
It is hard to believe that UK house prices could rise to 6-7x incomes or rental yields could be pushed as low as 4-5%, without there being a degree of rampant speculation which may (like in the US) be built upon a combination of extravagant lending, false certification and an absolute requirement that house prices continue rising.
The banks are not lending to each other because the collateral upon which such lending is typically based is now highly questionable (thanks initially to the subprime crisis, but now permeating through other apparently 'safe' assets). Hence the 'equilibrium' interest rates which would persuade a counterparty bank to lend to a competitior are unsustainably high. Thus in a form of Darwinism, it is the likes of Northern Rock that collapse first because their needs are the greatest thanks to the over-reliance upon the capital markets that are now frozen.
NYA & S_Red ...... any idea as to how NR's crisis will affect those who have mortgages with them - and what happens (despite being at the moment underpinned by the Bank of England) should they collapse?
N/R's products recently have always had good headline rates, but with some of the highest arrangement fee's in the industry- a good sign that they had cash flow issues. TBH- I haven't placed mortgage business with them for at least 12 months now due to these fees
I also think that one of the long term effects on this will be higher margins on rates. Example- Barclays were lending at BBR + 0.18%, free transfer costs- where is the profit in that?
But the media induced frenzy of people queuing to get their money out is quite sad really given the protection that is in place.
edit- Oggy, if they stop trading then someone will take over their book, they will have to honour existing contracts (this is suprising common, lenders like GMAC have always done this)
It's certainly a sign of the times in dumbed-down Britain that irresponsible media frenzy reporting can generate a panic kneejerk reaction by the public.
You are right on both accounts- I don't have more than £35k on deposit- (Not giving too much away there) but if i did- i'd certainly have spread it around several banks.
Oh and WSS- maybe not £35k, but there are at least half a dozen people i know, including myself, who have just bought N/R shares
Put it all on an Addicks clean sheet. Safer than bricks and mortar.
Actually, Leeeeeeeburn, at the moment I believe your money would be a better bet even in the Northern Rock........
Well that was clever wasnt it you dozy bint
For the love of god!
The problem with a takeover is that you won't get much premium to the price and because they have a large chunk of the mortgage market it might prevent a takeover from any of the big mortgage banks. Government rules are that no one single lender can have more than 25% of the market and the likes of Lloyds. barclays etc will go close to or above that.
In the meantime any buyer will conduct a bit of due dilligence beforehand - looking at the books and trying to ascertain exactly what Norther Rock's assets are and what the liabilities are, given the cash withdrawals the asset base will be difficult to ascertain and the liabilities will include a poisoned reputation. Any buyer of NR will be aware that they are potentially buying a lot of problems.
On the subject of whether buying NR shares is a good trade, I suspect it is a 'falling knife.' It is always tempting to think a share is good value because its fallen >50% in two days, but before ploughing in it's worth remembering some simple maths....a share that falls 90% is one that falls 80%, and then halves again. You can easly get caught out, and don't forget the company is insolvent and the equity is worthless (without the BoE guarantee), and clearly it has no future as an independent company. Moreover, if it is bought it will have to be done without the ongoing BoE guarantee (otherwise the competitors of the purchaser would be outraged), further reducing the price it might capture. Its business model is completely flawed and by way of comparison, those US lenders who also lack a strong deposit base have similarly gone to the wall, or are heading that way (eg. Countrywide).
I do think it's curious though that no-one is questioning whether its appropriate, despite the good intentions to protect savers, that the BoE now owns tens of billions of aggressively-structured mortgages on its balance sheet (probably at the 'top of the market', at least for now). This has the potential to get very ugly for the UK taxpayer. If the truth be told, the best course of action would have been to allow NR to go under.
I tell you what, if I had any more in there than the 2 or 3k guarranteed then it would be coming out straight away, and certianly I would be withdrawing anything over the 30k-odd 90% payout limit. It would be my money and I could do what the f*ck I liked with it. If it was potentially at risk - no matter who slight or unlikely that risk may be - then I would be looking to put it somewhere safer.
After all, in many cases this is peoples life savings we are talking about. If you had say £100k in there would you want to risk it - again, no matter how slight that risk - for no gain and when you had ample time to negate that risk? Of course not - and anyone else who says differently really does need their head testing in my view.
There's probably a lesson in here for savers. Ultimately they are lending money to the bank they deposit their savings with, and it's now clear there's a world of difference between an old-fashioned mutual building society and the likes of NR. If the interest rates at NR were aggressively high (tempting the savers in) then now you know why. The usual rules about not putting your eggs in one basket probably apply to savings, as well as other investments.
A lot of people will have had their money in the Northern Rock equivalent of an "instant access" account. By definition they therefore want to withdraw their money when THEY want it not at some indeterminate time in the future when bureaucratic procedures and obstacles have run their course.
In short you have the "rich" (more than £35K say) withdrawing and the poor who possibly need instant access to their money on a "rainy day" withdrawing.
It is perfectly understandable to me why people are reacting in the way that they are to this crisis.
Luckily I don't have that problem just now, but I don't see how people on here - some of whom probably haven't got a pot to piss in themsleves - can blandly crticise people for doing what they believe to be right for themselves and their families.
Spot on Len - particualrly that last bit. People can call it "panic" if they like, but I defy anyone on here to act any differently if they were in the same boat.
Which is why NS&P is looking particualry attractive right now.
which is where i've got my little bit...
That's a totally different question.
Sticking to theme, if you had £100k in NR Rothko would you be happy to leave it there in the current climate?