Firstly apologies for the lack of a business news round-up, but with today's events there seems little point in reviewing the fish and chip wrappers of tomorrow. Back to normal service next week.
Well it is all over the news and I am quite shocked that it has come to this. Sadly, I have to eat my hat (hat-tip istockphoto) as I was sure that Virgin would win the bid. Instead, the Government has decided it knows how to run a bank better than private sector bankers.
The decision really beggars belief and although I will post on this later this week, but here are 5 key points to remember:
1. All the Minister's talking on the news bulletins today talk about a temporary nationalisation. This is a cruel play on words, what they mean is it is not for all time. However, it is hard to see the taxpayers getting our money back within a 5 year horizon; so don't be fooled by the piece of spin.
2. The idea of NR being 'run at arms length' is ludicrous. Gordon Brown likes to have everything within swiping distance and seeing as this crazy idea was his, he will interfere as much as he can. I would not be surprised to see some of the parachuted in executives leave within a few months.
3. If Olivant and Virgin could not make the sums add up, then whay can the Government? To second guess private enterprise invites another whole PFI type disaster upon the taxpayers.
4. The Northern Rock brand was already ruined, now it is to be owned by socialists who have never had a private sector job anywhere near finance(Darling and Brown have these resumes). Branson said the brand was wrecked and it still is, how to keep this business a going concern will be the real priority.
5. The shareholders will sue the government and they might well win, in which case the debts will grow even further rather than shrink.
12 comments:
Are we going to have a re-run of the battles between Railtrack shareholders and HMG?
Where do we stand on state-aid, surely a loss-making Rock will breach the rules?
What was it that a Labour luminary called the railtrack shareholders? Was it "grannies"? Something derisively dismissive anyway: the arrogance of power was on naked display.
Have you noticed from the Treasury statement the legislation won't be just for Northern Rock, it's a general power for 12 months:
The Bill gives the Government a general power to acquire the shares in, or assets and liabilities, of institutions. ... We have deliberately drafted the Bill to ensure that a bank can only be acquired in certain tightly defined circumstances. And that power will only last for twelve months.
Wonder who is next?
Ed - yup and the hedge funds boys have more firepower too.
Dearime - Brown thinks he can run a bank better than the private sector. The arrogance knows no bounds.
rewndland - brilliant spot. Do you have any shares in Bradford and Bingley?
If NR was to offer a high savings rate to attract cash back into the bank to repair its balance sheet won't other banks then start to lose cash? I am certainly a rate tart and one would be mad not to be. Might the saving of NR might end up be the breaking of others?
Surely if NR did anything which effected the loss of income to other banks (ie became competitive) they would go crying to europe?
Totally agree. Why would you want to entrust a bank with a bunch of politicians whose understanding of financial matters is such that they can't even fiddle their expenses properly?
Cut the Rock loose and let it sink or swim. The only reason this has been done is because if NR went tits up staff and shareholders in Labour heartlands would loose out.
Ed: Surely your idea would only work if NR turned into a purely savings bank a la National Savings? If, as Darling said, it is "business as usual" from tomorrow, then they will continue to make dodgy loans.
Have you seen the execrable Op-Ed piece in the FT saying this is the best of all possible worlds and its not like a Nationalisations of old. FT really is in that Large Corporatist / Leftist idiot dream world and seem to have lots the plot ...
Cashier: well then NR should stop lending to people if it doesn't have the cash.
Ed/Cashier - as anon says, the other banks won't stand for it if NR starts under-cutting the market.
But maybe this is Brown's plan to conquer The City? By out-competing the banks with taxpyers money. laugh if you like BUT that is the current plan when you think about it, how else can the Rock be turned around?
Hovis - I don't read the FT, its full of press releases and not much else. Comment I can do myself(!) I am unsure as to how many journo's they actually employ anymore....
that is the current plan when you think about it, how else can the Rock be turned around?
Well in my roundabout way that was pretty much what I was asking. The only way to get NR back into profit is to provide a better more competitive service, but if Darling does that at a loss then it's state aid territory and the other banks will cry "subsidy!".
I don't know whether to laugh or cry.
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