Northern Rock to be nationalised

[DanS]

Originally posted by TheStinger
Brilliant I now own a bank

Congratulations! Your first job is to fire half the employees.

[C0ckney]

i remember the chancellor fairly recently describing northern rock, on national television no less, as a company with a 'fundamentally unsound business plan'. now it appears that the government is propping up this company with a 'fundamentally unsound business plan', using £50bn of our money.

this is bigger than british steel, bigger than british leyland, bigger than all the other disastrous nationalisations in the 1970s. i suppose they've made the best of a very bad job, but why has the government allowed itself to be put in this position in the first place.

[Drogue]

Originally posted by C0ckney
i remember the chancellor fairly recently describing northern rock, on national television no less, as a company with a 'fundamentally unsound business plan'. now it appears that the government is propping up this company with a 'fundamentally unsound business plan', using £50bn of our money.

Not quite true. He said it had a fundamentally unsound business plan, which was lending money on long-term mortgages while borrowing in the short-term wholesale market. The whole reason it was unsound was because the market could dry up, which it has. When finding capital isn't a problem, it's an extremely profitable business plan, as the huge growth beforehand shows. By stepping in, the government's removed the unsoundness, and the main problem now is how should it be allowed to compete with private enterprises, while getting rid of it's liability.

Originally posted by C0ckney
this is bigger than british steel, bigger than british leyland, bigger than all the other disastrous nationalisations in the 1970s. i suppose they've made the best of a very bad job, but why has the government allowed itself to be put in this position in the first place.

Lesser of two evils. If they didn't underwrite deposits, the bank would have gone bust and the 1 million+ people with savings in it wouldn't have been able to get them. The market was expected to get better, meaning Northern Rock could borrow again. It hasn't. Given that they had underwritten deposits, they had to underwrite the banks finances. Which gives you three options:
Allow it to continue (which they did while trying to find a buyer);
Nationalise it;
Call in the loan and put it into administration.

None of them are good options. From a finance point of view, any other lender would have done the last of these options, as it would mean they get their money back. However it would cause a quick-fire sale of their assets, meaning the government (with it's guarantee) would likely have to top up the proceeds of these sales with public money, to pay the depositors. Moreover, it would mean the loss of 6000 jobs.

The current solution keeps the jobs, keeps the company making money and keeps depositors protected. It's just a bit of a minefield. A private sector solution would be better, but not on any terms. When the markets start to move better, it can sell off bits of it's (valuable) mortgage book, and begin to pay back the loan to the taxpayer. Even if the government were to wind it down now, over the next 25 odd years they'd be paid off and then some as people pay off their mortgages.

I said in October to some friends that I'd put money on the government making money out of this, in the long run. Unless they're forced to compensate shareholders, which IMHO would be entirely ludicrous - they could have called in the loans and NR would have gone bust immediately. It would be quite feasible for them to call in the loans, put the company into administration and then offer to buy the company in exchange for paying off the loans (mainly to itself), which the administrator would agree to immediately.

[Aeson]

Originally posted by Drogue
I said in October to some friends that I'd put money on the government making money out of this, in the long run. Unless they're forced to compensate shareholders, which IMHO would be entirely ludicrous - they could have called in the loans and NR would have gone bust immediately. It would be quite feasible for them to call in the loans, put the company into administration and then offer to buy the company in exchange for paying off the loans (mainly to itself), which the administrator would agree to immediately.

FWIW: From the article in the OP:

"Under nationalisation rules, shareholders will be offered compensation for their holding, at a level set by a Government-appointed panel."

[Krill]

And that compensation might be 1p per 100 shares...

[Aeson]

Thus... FWIW

[Krill]

oh sorry

[VetLegion]

Originally posted by TheStinger
Brilliant I now own a bank

[Drogue]

Originally posted by Aeson
FWIW: From the article in the OP:

"Under nationalisation rules, shareholders will be offered compensation for their holding, at a level set by a Government-appointed panel."

Yep Darling's already suggested a while ago it would be pretty minimal, and it's supposed to be the value of the company without the government guarantees. Which is pretty close to zero.