FT: Northern Rock faces years of debt


F

Faubillaud

Northern Rock faces years of debt

By Jane Croft and Peter Thal Larsen in London

Financial Times
Published: November 13 2007 20:41 | Last updated: November 13 2007 20:41

Northern Rock could still owe the Bank of England billions of pounds in
three years¹ time, according to a confidential sales memo circulated to
would-be buyers of the stricken lender.

The memorandum, obtained by the Financial Times¹ Alphaville website, is now
the subject of a court injunction after Northern Rock sought to prevent
publication of its details. The High Court granted a limited injunction
preventing further reporting of material, but it rejected a much more
sweeping prohibition sought by the bank after much of the FT¹s report was
followed up in other media.

The document suggests that even if the company was bought outright, the Bank
may have to provide support to Northern Rock until 2010 when the stricken
lender could still be drawing down £6bn.

The memorandum discloses that Northern Rock expects to have borrowed an
estimated £24bn from the Bank of England by January 1 2008. Northern Rock is
thought to have borrowed about £20bn from the Bank so far. Last night,
Treasury insiders voiced surprise at the suggestion that the government,
which has underwritten the Bank loan, would still be waiting to be repaid in
2010.

The memo talks about the loan being refinanced ­ though it is not explicit
about whether such a refinancing would continue to involve government
support. However, people involved in the sale process doubt whether any
bidder would be able to raise the necessary financing to repay the Bank in
the near future.

This could leave the government facing the political embarrassment of having
agreed to a long-term guarantee that it could be forced to justify to the
European Commission under rules governing state aid.

According to the sales memo, even in 2010 Northern Rock will need to be in
receipt of £6bn from what it calls a replacement facility from the Bank of
England.

The information memorandum has been sent to about 50 potential bidders and
sets out three options for a sale of Northern Rock. As well as a sale of the
whole business, the other scenarios envisage splitting up Northern Rock.

One option would see a sale of the basic infrastructure of the business ­
such as the branches, IT and call centre that might or might not include
Northern Rock¹s £13.5bn of retail deposits and matching assets.

The other option would be a sale of the infrastructure plus securitised
mortgages, leaving behind some assets and liabilities for an orderly
run-off. Both these scenarios would leave Northern Rock as a listed entity
with assets that could be used to repay the Bank of England.

The memorandum assumes Northern Rock¹s profits will plunge to £143m in 2008
but will recover to reach £643m by 2010. This would be an impressive
recovery as it is more than the bank made in 2006.

Potential bidders looking at Northern Rock include a Virgin-led consortium
as well as private equity groups including JC Flowers and Cerberus.

Luqman Arnold, the former Abbey National executive, is also proposing to
lead a team that could turn round Northern Rock in its current form. His
plan would see his private equity company, Olivant, bring a team of
experienced executives into Northern Rock in return for the right to buy a
minority stake.

Most of the bidders for Northern Rock are thought to have concluded that the
shares are worth next to nothing. However, several hedge funds have built
substantial stakes in the bank and would be expected to resist any proposal
that would undermine the value of their shares.

On Tuesday it emerged that SRM Global, the hedge fund run by Jon Wood, a
former UBS trader, had increased its stake in the bank from 4 per cent to
6.17 per cent. Shares in Northern Rock closed down 1.55 per cent at 152p.

http://www.ft.com/cms/s/0/b89a98ae-9227-11dc-8981-0000779fd2ac.html
 
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M

M Holmes

In uk.finance Faubillaud said:
Northern Rock faces years of debt
By Jane Croft and Peter Thal Larsen in London
Financial Times
Published: November 13 2007 20:41 Last updated: November 13 2007 20:41
Northern Rock could still owe the Bank of England billions of pounds in
three years' time, according to a confidential sales memo circulated to
would-be buyers of the stricken lender.
Hmmm. I've seen articles indicating that if they're still being bailed
out in February, they'll be breaking EU State Aid laws. Certainly I
wrote to my MEP from the getgo and asked him to look into whether Brown
and Darling's largesse on our behalf was even halfway legal. I suggest
others do the same and perhaps we can get the plug pulled on this vast
exercise in socialism on behalf of speculators.
The memorandum, obtained by the Financial Times¹ Alphaville website, is now
the subject of a court injunction after Northern Rock sought to prevent
publication of its details.
Interesting that while we've become involuntary lenders to Northern
Rock, we're not privy to their business dealings. Darling doesn't seem
to be acting in our best interests with our money.

[...]
The document suggests that even if the company was bought outright, the Bank
may have to provide support to Northern Rock until 2010 when the stricken
lender could still be drawing down L6bn.
I dunno about anyone else, but I can think of better things to do with
my share (which is probably at least a couple of grand and counting.
Northern Rock screwed up. Cut 'em off and let the markets teach their lesson.
The memorandum discloses that Northern Rock expects to have borrowed an
estimated L24bn from the Bank of England by January 1 2008. Northern Rock is
thought to have borrowed about L20bn from the Bank so far. Last night,
Treasury insiders voiced surprise at the suggestion that the government,
which has underwritten the Bank loan, would still be waiting to be repaid in
2010.
That they're surprised at all indicates that they possibly have as
little clue as Darling as to what they're about. That this socialism for
bankers would be damn near never-ending was about the first thing that
occured to me when Brown and Darling overruled King. This is just the
first bank to go down in what will be a very long credit crunch. Now
that one has been put on the taxpayer tit, the rest will all want a suck too.
The memo talks about the loan being refinanced ­ though it is not explicit
about whether such a refinancing would continue to involve government
support. However, people involved in the sale process doubt whether any
bidder would be able to raise the necessary financing to repay the Bank in
the near future.
We get to bail out some more speculators? My, what a wonderful job Brown
and Darling are doing.
This could leave the government facing the political embarrassment of having
agreed to a long-term guarantee that it could be forced to justify to the
European Commission under rules governing state aid.
I suppose that the EU eventually had to be discovered to be good for
something. That this will be reining in politicians from charity
financed by a raid on the pockets of longsuffering taxpayers seems
rather unlikely. Believing that it will actuually happen feels akin to
renouncing my atheism as to the existence of Father Christmas.
According to the sales memo, even in 2010 Northern Rock will need to be in
receipt of L6bn from what it calls a replacement facility from the Bank of
England.
I.E. Capitalists figure they're a dead duck and won't loan to them, so
only socialists who can pick other people's pockets reckon they're a
sound investment.
The information memorandum has been sent to about 50 potential bidders and
sets out three options for a sale of Northern Rock. As well as a sale of the
whole business, the other scenarios envisage splitting up Northern Rock.
How about just getting the state out of the banking business and letting
free markets do their magic. I'm sure that before June, the entire board
of Northern Rock would have cheered at such a sentiment. It's amazing
how quickly these dilettante capitalists turn socialist the very minute
a bet goes awry.
The memorandum assumes Northern Rock¹s profits will plunge to L143m in 2008
but will recover to reach L643m by 2010. This would be an impressive
recovery as it is more than the bank made in 2006.
This is more of what one wag at the Royal Bank of Scotland called "mark
to make-believe" this week.
Potential bidders looking at Northern Rock include a Virgin-led consortium
as well as private equity groups including JC Flowers and Cerberus.
I wish Branson would stick to the basic solid business of building
spaceships.
Most of the bidders for Northern Rock are thought to have concluded that the
shares are worth next to nothing. However, several hedge funds have built
substantial stakes in the bank and would be expected to resist any proposal
that would undermine the value of their shares.
Hedge funds : saviours of the common man.

FoFP
 

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