Northern Rock

[DaveyCakes]

Does anyone have any money in Northern Rock? Did you take it out?

[soccerc]

Does anyone have any money in Northern Rock? Did you take it out?
Yes and Yes, Thursday evening at about 10pm

[pete]

I have not read the details but if I had money there I would have withdrawn by now. No disadvantage to moving money. I presume most people will take their money out subject to terms of their account.

The brand name is muck now & only a matter of time before no customers left.

[OneRedArmy]

No need to take it out, if only because its a waste of time queuing up all day.

Can't remember off the top of my head if non-UK residents are covered by the Deposit Guarantee Scheme there (100% up to £35k) but its a bit of a non-issue in any case.

Still can't believe the FSA allowed them to operate on a business model which pretty much ensure implosion in the event of a credit crunch (something that generally occurs at least once in each economic cycle).

[soccerc]

No need to take it out, if only because its a waste of time queuing up all day.

Can't remember off the top of my head if non-UK residents are covered by the Deposit Guarantee Scheme there (100% up to £35k) but its a bit of a non-issue in any case.

Still can't believe the FSA allowed them to operate on a business model which pretty much ensure implosion in the event of a credit crunch (something that generally occurs at least once in each economic cycle).

Didn't have to queue up as ours was an internet account and id accessed itit before midnight on Thursday as soon as I heard about the "loan".... before their website became clogged.

Moved it very simply to another institution based in Ireland but offering a lower long term interest rate.

[OneRedArmy]

The brand name is muck now. .Certainly is.

& only a matter of time before no customers left.They didn't have a huge deposit base, which is what caused the problem in the first place. As for the mortgage base, its inevitable that will be sold, probably fairly soon.

Net effect, zero (save for usual herd panic behaviour spurred on by the media).

Actually, whilst thats a fair assessment for the general public, its probably not strictly true in terms of the market impacts. One of the major effects will be that the fashion of the last decade for banks to act only as salesmen and securitise assets quickly to get them off the balance sheet will no longer be an option.

[pete]

* Loans and assets of £113bn
* Deposits from customers of £24bn

With those numbers if everyone was to request their savings back they would be bust but then again its the same with most banks. I think NR fund a lot of customer loans by borrowing from other banks though.

[OneRedArmy]

Didn't have to queue up as ours was an internet account and id accessed itit before midnight on Thursday as soon as I heard about the "loan".... before their website became clogged.

Moved it very simply to another institution based in Ireland but offering a lower long term interest rate.Your money was never in any danger, but its likely they will have to reduce deposit rates at some stage to un-competitive levels to pay the penal interest rates the BoE are charging.

[soccerc]

Your money was never in any danger, but its likely they will have to reduce deposit rates at some stage to un-competitive levels to pay the penal interest rates the BoE are charging.

As a depositor from Ireland using a UK based and regulated bank I am still not sure if my deposit was secure despite assurances..

[Stuttgart88]

NR was overly dependent on "wholesale" funding, i.e., borrowing in large size from other banks, borrowing in large size from "securitising" its mortgage assets, but borrowing relatively little from "retail" depositors.

A complicated chain of events was set off by the implosion of the US sub-prime mortgage lending market which has caused a crisis of confidence in the wholsale markets leaving NR hopelessly short cash but not necessarily insolvent. If a liquidator was called in tomorrow assets would most ikely exceed liabilities, but the funding that was the lifeblood of their business model has dried up.

[OneRedArmy]

As a depositor from Ireland using a UK based and regulated bank I am still not sure if my deposit was secure despite assurances..The size of the BoE lifeboat made the Deposit Guarantee Scheme irrelevant but if you were able to get it out over the net it makes it less messy.


NR was overly dependent on "wholesale" funding, i.e., borrowing in large size from other banks, borrowing in large size from "securitising" its mortgage assets, but borrowing relatively little from "retail" depositors.

A complicated chain of events was set off by the implosion of the US sub-prime mortgage lending market which has caused a crisis of confidence in the wholsale markets leaving NR hopelessly short cash but not necessarily insolvent. If a liquidator was called in tomorrow assets would most ikely exceed liabilities, but the funding that was the lifeblood of their business model has dried up.It wasn't really that complicated or unforseeable.

All banks have liquidity risk policies which should deal with credit crunches. I'd love to see what NR's said ("put up for sale sign" presumably?!).

[soccerc]

The size of the BoE lifeboat made the Deposit Guarantee Scheme irrelevant but if you were able to get it out over the net it makes it less messy.

ORA, on Thursday evening there was no indication of the size or terms of the BoE lifeboat.

As a depositor from outside the jurisdiction I had no way of knowing if my funds were secure so I took the action I deemed necessary at that time.

As I am not currently employed the funds are there should I need to maintain our current standard of living. OK, I could ask Stutts as an actuary what the best place for these finds are but I'd prefer to have instant access at a reasonable rate to account for irish inflation. NR offered that as did a Dutch based outfit.

[pineapple stu]

* Loans and assets of £113bn
* Deposits from customers of £24bn

With those numbers if everyone was to request their savings back they would be bust but then again its the same with most banks. I think NR fund a lot of customer loans by borrowing from other banks though.
How do you figure?

They have assets of E113bn and are going to pay out, worst case, £24bn. That leaves E79bn. They're not losing any money by refunding everyone - they're just losing cash flow. The loan they got from the Bank of England covers the money they're going to have to return, so that eases over the cash flow. Rebuilding their name seems to be the major issue now.

[beautifulrock]

The UK gov is now guaranteeing all deposits. This should stop the panic and bring some balance to the market. Still will, as been said, leave NR a tough road to re build their reputation.

[Dodge]

The UK gov is now guaranteeing all deposits. This should stop the panic and bring some balance to the market. Still will, as been said, leave NR a tough road to re build their reputation.

Typical of the Rick family, sticking up for each other

[Macy]

Normal for all banks to have a high loan to deposit ratio.

I really don't blame people taking their money out - why would you take the risk if you could take the money out? Easy for people without money in the bank, and mega rich politicians to tell people not to panic...

[the 12 th man]

Fwiw,share price up 10% this morning.(Takeover ?)

[beautifulrock]

Fwiw,share price up 10% this morning.(Takeover ?)

well the will mainly be the reaction to the Government bail out and their efforts to steady the market. Alliance and Leicester (similar business model to NR) are up 25%. I doubt they will be taken over for the same reason they are in the mess in the first place i.e. lack of credit available to a potential buyer.

[OneRedArmy]

I doubt they will be taken over for the same reason they are in the mess in the first place i.e. lack of credit available to a potential buyer.Its got nothing to do with credit risk, its liquidity risk that caused the problem.

Buyers are lining up to make a bid, there were allegedly two before last Thursday, but the FSA insisted NR when public and tried to sort themselves out before they would approve a takeover.

Their mortgage business, although at the higher end of the risk scale (self cert and buy-to-let focus) is very attractive.

[beautifulrock]

Its got nothing to do with credit risk, its liquidity risk that caused the problem.

Buyers are lining up to make a bid, there were allegedly two before last Thursday, but the FSA insisted NR when public and tried to sort themselves out before they would approve a takeover.

Their mortgage business, although at the higher end of the risk scale (self cert and buy-to-let focus) is very attractive.

Its got everything to do with the credit squeeze and nothing to do with their liquidity. Common misconception that they are at the higher end of the lending scale as well. Their average LTV is below 70% and their arrears percentage is below the CML average. I agree that their mortgage book is very attractive especially when you consider Non prime lenders like GMAC have (or should i say had until the credit squeeze) most of the main UK lenders falling over themselves to buy their assets

[OneRedArmy]

Its got everything to do with the credit squeeze and nothing to do with their liquidity. Common misconception that they are at the higher end of the lending scale as well. Their average LTV is below 70% and their arrears percentage is below the CML average. I agree that their mortgage book is very attractive especially when you consider Non prime lenders like GMAC have (or should i say had until the credit squeeze) most of the main UK lenders falling over themselves to buy their assetsAverage LTV is always lower for BTL and self cert as its higher risk business and therefore lenders require higher deposit. Just because current default levels are low doesn't mean self cert and BTL are low risk. They are relatively new market categories and nobody knows where the top of the default cycle will be.

Re the credit squeeze, I think you have misintepreted my point. I said it had nothing to do with credit risk, which is the risk of their (NR's) mortgage assets defaults. You have confirmed that by stating that they currently have low default levels!!

Liquidity risk is precisely Northern Rocks problems as they rely on regularly packaging and securitising their mortgages and keeping a light balance sheet. The securitisation market has dried up and therefore NR have run into problems as they don't have a strong enough balance sheet to fund internally and have no access to the external funding market.
This is firmly a liquidity risk issue (which was driven out of credit risk issues in the US sub-prime market)

[beautifulrock]

But they dont have a light balance sheet 124bn is not light by any stretch. Nor do they do self cert mortgages. Agree that if they did it would impact on the average LTV if they did as the max self cert mortgage is generally around the 80% LTV. BTL is not calculated by LTV but by pay rate i.e. the mortgage repayment ratio to rental income. This is generally set at 115% but some lenders are not offering BTL mortgages on a 100% pay rate.

[pete]

I don't know what the risk is but I would not surprised to see a lot of interest in their mortgage books. Any potential buyer would have very low admin fees as opposed to having to get new customers in with those mortgages.

[OneRedArmy]

But they dont have a light balance sheet 124bn is not light by any stretch. Nor do they do self cert mortgages. Agree that if they did it would impact on the average LTV if they did as the max self cert mortgage is generally around the 80% LTV. BTL is not calculated by LTV but by pay rate i.e. the mortgage repayment ratio to rental income. This is generally set at 115% but some lenders are not offering BTL mortgages on a 100% pay rate.
Glad you have accepted its a liquidity issue ;)

Assumed as they were big in BTL they were big in self cert, clearly not!

Not aware of how NR determine limits but LTV is certainly one of the key measures elsewhere, along with rental yield. From what I've seen whatever way you limit in, lenders require a bigger deposit from BTL than personal dwellings.

[beautifulrock]

Glad you have accepted its a liquidity issue ;)

Assumed as they were big in BTL they were big in self cert, clearly not!

Not aware of how NR determine limits but LTV is certainly one of the key measures elsewhere, along with rental yield. From what I've seen whatever way you limit in, lenders require a bigger deposit from BTL than personal dwellings.

no have not accepted the liquidity issue as explained this is not the case, cause and effect perhaps. ;)

NR are a pure balance sheet lender and their aim was to continue to grow using what was until a few weeks ago, quiet cheap and freely available inter bank money. They have a little under 20% of the uk mortgage market and have never sold any of their mortgage assets to raise caapital as this would defeat their ultimate purpose of continous growth. it goes without saying they may need to start selling off the family silver to survice going forward.

[OneRedArmy]

no have not accepted the liquidity issue as explained this is not the case, cause and effect perhaps. ;)

NR are a pure balance sheet lender and their aim was to continue to grow using what was until a few weeks ago, quiet cheap and freely available inter bank money. They have a little under 20% of the uk mortgage market and have never sold any of their mortgage assets to raise caapital as this would defeat their ultimate purpose of continous growth. it goes without saying they may need to start selling off the family silver to survice going forward.Getting a bit techy, but Northern Rock have historically been one of the biggest users of securitisations in the market since the late 90's. Unless you consider this "on balance sheet funding" :confused: they aren't really lending off their own balance sheet and have effectively sold the assets.

The 20% figure relates only to new loans in the first 6 months of this year. Average outstanding figure is nearer 9%.

[drinkfeckarse]

My mortgage is with Northern Rock and my fixed rate will expire next summer. Will all this mean NR will be unable to offer a competitive rate when I shop about or the opposite, or do you think they will just continue to operate as normal??

Would it be a good time to leave NR? All this business has left me with a million questions!

[OneRedArmy]

My mortgage is with Northern Rock and my fixed rate will expire next summer. Will all this mean NR will be unable to offer a competitive rate when I shop about or the opposite, or do you think they will just continue to operate as normal??

Would it be a good time to leave NR? All this business has left me with a million questions!Keep with them at the minute. They can't do anything to the fixed rate and if they go totally bust and their mortgage book is not bought (highly unlikely but possible), you retain ownership of your home with no mortgage to pay.

What is likely to happen is that the mortgage book will either be bought or managed to maturity. You'll likely face a rate hike but most lenders are hiking rates anyway as their cost of funding is well above the base rate.

So basically you have plenty of time, with a very slim chance you could end up mortgage free.

[drinkfeckarse]

Thanks for that ORA. A bit of clarity anyway.