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Looking a little better ~ but still people are queing!

Northern Rock: the facts you need to know
By Nick Louth
September 18 2007


Northern Rock, the UK's fifth biggest mortgage lender is continuing to suffer a run on deposits today and its share price is plunging. The bank's problems last week were triggered by the freezing up of the inter-bank loans market on which it relied for 75% of its mortgage funding. Most rival banks rely much more on deposits by savers.

Shares in Northern Rock are up 10% on the chancellor's promise to underwrite all existing deposits - meaning that even if Northern Rock went bankrupt, the repayment of customers would be funded through the bank's assets. If the bank is not actually solvent, taxpayers will wind up footing the bill.

As a result, after failing to find an immediate takeover partner, Northern Rock last Friday turned to the Bank of England in its role of lender of last resort to help it fund commitments to repay maturing wholesale funding facilities.
Whether you are a saver with the Rock, have a mortgage with them, own some of the bank’s shares or indeed work for it, here are six important points that you need to know.
1. Savers’ money is safe
All deposits at Northern Rock are protected by the Financial Services Compensation Scheme. If the Bank of England was not supporting the bank, and it went bust, you would be entitled to protection on the first £35,000 of your savings. This was made explicit last night when the chancellor, Alistair Darling, pledged that the Bank of England would underwrite all existing deposits.

The protection covers 100% on the first £2,000 deposited and 90% of the next £33,000. Those with more than this in any one bank would be well advised to spread their cash.
2. The Bank of England support is open-ended
This savers’ protection scheme will not in any case be necessary, because the Bank of England’s support for Northern Rock is open-ended.
What that means is that however much of their deposits savers pull out, the bank will still be able to get the money to meet those requirements from the Bank of England. Frantic queuing to get your savings back, however understandable, is not necessary.
Is your money is safe? Have your say on the message board
3. Mortgage holders will see little change
If you are one of the 800,000 people who own a mortgage with Northern Rock, you won’t see any immediate changes. After all, you owe Northern Rock money, they don’t owe it to you!
If any bank goes bust, the streams of income from the mortgages are valuable and will be sold on to a buyer. All that would change is the address to which you would send future payments.
However, those new Northern Rock borrowers now in the process of having their mortgage application processed may find rates are less competitive.
With 80% of Northern Rock’s existing mortgages on fixed rates, the cost of these will not change. Half the rest have tracker mortgages, whose rates are pegged to the Bank of England base rate.
Because of the financial turmoil, this rate is actually more likely to go down than up over the next few months. The rest are on Northern Rock’s standard variable rate of 7.84%, which could rise though the bank has not indicated it will do this.

Find the remortgage rates for you
4. Poor outlook for some staff
This is clearly a very worrying time for Northern Rock’s 6,400 staff. At some stage, the bank is very likely to find itself bought by a rival bank.
The attractions are the high street branch base, of which there just 76, and the mortgage book. Despite what some of the Sunday Papers said, the bank actually has a very solid asset base and has not overall been irresponsible in its lending practices. Overall only 0.47% of its mortgages are in arrears of three months or more, about half the sector average.

The good news is that Northern Rock runs a very tight ship, with costs accounting for only 27.3% of income, the lowest ratio of any major bank. This means that staffing numbers are not padded and easy to cut. Typical rivals with larger branch networks often soak up 48-50% of income in costs.

Northern Rock’s website, mortgage processing and branch staff are going to have an easier time of it in any transfer of ownership than those in head office functions.
The long-term future for telephone support staff and those whose job was to find the wholesale funding is less certain. Northern Rock’s brand is fatally damaged, and that is certainly likely to disappear, perhaps along with its sponsorship of Newcastle United football club and the many good causes in the North East that it supports through its Northern Rock Foundation..

5. Investors’ outlook bleak
This isn't a great time to be an investor in Northern Rock. The shares lost 30% of an already sagging share price on Friday and a further third on Monday. They recovered slightly on Tuesday to 310p, still a far cry from the peak of 1250p reached in February.

Though a takeover of the bank is almost inevitable, shareholders shouldn’t expect a fat premium to the current price. Most potential buyers are particularly cash-strapped at the moment, holding funds that they in other circumstances might have lent to Northern Rock to meet their own wholesale market commitments.
Check the performance of the major UK banks
In the unlikely circumstances that Northern Rock finds no buyer it will run down its current mortgage base. The banks own advisors have calculated the assets as being worth 180p a share under that scenario, according to the Financial Times.
6. Long-term future of banks undimmed
As I said in an article three weeks ago, the financial turmoil will eventually uncover tremendous long-term bargains across the banking sector, which has an almost unrivalled ability to generate large earnings and dividends.
The essential thing for those steely-nerved investors ready to take the plunge is to keep waiting until the falls have stopped, and to make sure any investment is spread across a wide range of banks. From what we have seen so far, there may be further falls to come.

Darling saves the day for Northern Rock

Saturday, September 15, 2007

Northern Rock

We have substantial amounts of money in NR!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Wednesday, September 12, 2007

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