Banking Panic - The Plan (7)

Banking Panic - The Plan (Prelude)
Banking Panic - The Plan (1)
Banking Panic - The Plan (2)
Banking Panic - The Plan (3)
Banking Panic - The Plan (4)
Banking Panic - The Plan (5)
Banking Panic - The Plan (6)
Banking Panic - The Plan (8)
Banking Panic - The Plan (9)
Banking Panic - The Plan (10)
Banking Panic - The Plan (Nearly There)
Banking Panic - The Plan (Arrival)
Banking Panic - The Plan (The Next Phase)
Banking Panic - The Plan (11)
Banking Panic - The Plan (12)
Banking Panic - The Plan (13)
Banking Panic - The Plan (Exit)
Banking Panic - The Plan (1st Encore)
Banking Panic - The Plan (2nd Encore)
Banking Panic - The Plan (3rd Encore)
Banking Panic - The Circus

Northern Rock and the £Multi-bn Debt

Richard Branson is looking like the leader in the race to 'rescue'.

Northern Rock (October 2007)
Northern Rock - Another Update (March 2009)
Northern Rock - Lending Policy
Northern Rock - The Depression (March 2009)

This is hardly a magnanimous gesture, but an investment to make 'money'. Branson doesn't give money away. He is a businessman. Shrewd and will doubtless attempt to turn a loss into a profit.

Profile

After Northern Rock went 'cap in hand' to the private Bank of England (September 2007), via the government, to borrow £billions, still £billions (more) remain payable. This 'protects' the financial system. Caring about people? Not a chance, but looks like it, doesn't it? Ask yourself, when has such behaviour ever happened before? Never. Money (profit) makers don't give money to anyone or anything unless there is an increased return to be made.

Virgin will allow investors to retain a stake in Northern Rock, unlike most of the other bidders. There are some 145,000 small investors, many of whom live in marginal parliamentary constituencies, but around 13% shares are owned by hedge funds: RAB Capital and SRM Global. Monaco's first hedge fund is being planned by £20m-a-year UBS trader, Jon Wood. During a court appearance two years ago, Mr Justice Warren concluded that "one side is lying rather than mistaken" and that Wood is a "very hard and calculating man".

The borrowings of Northern Rock from the Bank of England (£26bn) have risen to a theoretical £40bn after the government deposit guarantee has added the potential long-term interest. So, the recovery of the greatest part possible of any loan will reduce the interest payable. US equity group (JC Flowers) is a contender and it is shaping up into a messy squabble. After all, the pickings are potentially enormous. Virgin is thought to have raised around £15bn from a syndicate of banks and includes Royal Bank of Scotland and Citigroup and this concern dates back to the 19th century in Philadelphia (Smith Barney) .

'Raising' money implies a loan and so undeclared added interest. Both Virgin and Flowers are proposing to repay immediately a large part of that loan (£10bn) leaving about £16bn outstanding. This will reduce the £40bn potential charge immediately, though interest is still implicated. In effect, trading one loan for another, but paying off one loan using a loan. In addition, a cast-iron repayment deal is essential and this should be settled before the end of the decade (2010). This smacks of debt consolidation and credit card switching, just involving larger amounts of finance: electronic and theoretical. Branson even uses the term 'fresh start' in the proposed Northern Rock takeover.

Sound familiar?

Northern Rock was worth around £5.2 billion in February 2007, but currently is valued at around £360 million. Most of the cash is from savers, but it's borrowings go out as loans to its lenders (mortgagees). The money markets froze up in this summer's financial turmoil caused through the sub-prime affair. Financial cynicism and the absolute vulnerability of such a system has been revealed. This demonstrates the 'reality' of virtual money that doesn't actually exist. Virtual vapour becomes real vapour. It always was vapour, but the £5.2 billion is now technically real enough. Theoretically. This was probably (originally) around £360 million. Or thereabouts. The vapour just got more virtually nebulous. Financial imaginings. Fickle and transient.

The hedge fund (RAB Capital and SRM Global) have indicated their preference to wait for the crisis-hit credit markets to 'settle down' before considering a sale and would not, in any case, support a fire sale of all or part of the bank's assets in order to, presumably, minimise potential losses = maximise potential gains.

Banking Panic - The Plan (Prelude)
Banking Panic - The Plan (1)
Banking Panic - The Plan (2)
Banking Panic - The Plan (3)
Banking Panic - The Plan (4)
Banking Panic - The Plan (5)
Banking Panic - The Plan (6)
Banking Panic - The Plan (8)
Banking Panic - The Plan (9)
Banking Panic - The Plan (10)
Banking Panic - The Plan (Nearly There)
Banking Panic - The Plan (Arrival)
Banking Panic - The Plan (The Next Phase)
Banking Panic - The Plan (11)
Banking Panic - The Plan (12)
Banking Panic - The Plan (13)
Banking Panic - The Plan (Exit)
Banking Panic - The Plan (1st Encore)
Banking Panic - The Plan (2nd Encore)
Banking Panic - The Plan (3rd Encore)
Banking Panic - The Circus