Aug 2008 05

Crock Bills Hitting Mat5


One of them is an immediate demand for £600m

When the government first took over Northern Rock, they and their supporters tried to kid us that it was a short-term "liquidity problem", not a problem with the underlying credit quality of the Crock’s mortgage book.

You always needed to be Simple Simon to believe that (eg see our very first Crock post here), and this morning the truth is exposed for all to see. Crashing to a £585 million loss in the first six months of this year, its supposedly top quality mortgage book is falling apart:


"The number of mortgage borrowers that are more than three months in arrears has doubled in the space of six months to 1.18 per cent of the overall home loans book. Rock warned that it was particularly vulnerable to the housing market deterioration because of its past practice of offering big loans relative to the value of homes."


So that’s £600m of our money straight down the Swanee. And in addition to that, the government has agreed to convert £3bn of the Bank of England loan into equity (ie no obligation to repay – ever). And in addition to that, the Crock’s pension fund is in big deficit (last estimate £100m), with the trustees demanding an immediate cash injection from the company (ie us) or they will report us to the pensions regulator.

Just to reiterate the key point – however the deckchairs are rearranged between HMG loans and equity, the government’s blanket deposit guarantee means that taxpayers remain on the hook for pretty well the entirety of Crock’s remaining £97bn of debt (see new NR financial statement here).

PS Chancellor Darling was interviewed on BBC R4 Today this morning. Disappointingly he wasn’t asked why his original Crock assurances turned out to be so misleading, and how much we can now expect to lose.

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  • Ken

    To be fair, the current losses are coming from the existing NR shareholders’ equity and reserves, it is only when the losses rise above the pre-nationalisation capital that the taxpayer will be losing money on an accounting basis – this is the capital that belonged to the shareholders who got nothing for their shares. I do worry about the 3 billion in extra capital, this suggests that the government and the management expect the losses to be heavy (the bank managed with a total capital base of far less than this up until now.) Until NR is sold, we wont know the final cost – it may be more than the accounting loss or less. Let us be correct so that the lying government have nowhere to hide.

  • Hardeep_Singh

    Oh come, come Mike the Northern Rock is perfectly stable and just investment the government told me so :) In fcat I’m selling my Zimbabwe dollars to buy more shares in Northern Rock. I’m going up in the world don’t you know …. :) Oh wait the government took over the Northern Rock there are no more shares, oh well better change my money back into Zimbabwian dollars only they don’t appear to worth as much as they were 20 minutes ago :)
    Tongue in cheek only to cover my utter contempt for the handling this whole sorry affair.

  • Robert C

    The whole point of the Northern Rock is that it is the public sector picking up the bill for private sector failure by reckless bankers. If the government had simply let NR fail, the whole banking system could have collapsed. So not intervening was not an option. But maybe the free-market simpletons are forgetting all these inconvenient facts.

  • Hardeep_Singh

    Robert the whole NorthernRock episode of shame is not a simple monotone option betwen “should we have” or shouldn’t we have”. The lead up to the whole sorry affair where on earth were the government then? Where was the government’s financial lapdogs then? The very function of these entities was to safeguard the system from digest itself or falling over the cliff edge yet the threat was able to bypass these so called protective systems and we have ended up with a shopping great liability to pile on top of the already burdenous lump building up under the mat.
    Sure the government should have intervened by to what extent and in what respect? Like I said there are more finer details involved here that go beyond the simple should/shouldn’t debate. The Northern Rock turned up in a state of coma and yet Brown/Darling took months to pluck the courage to deal with it, quite simply they didn’t have a clue.
    It’s the government that allowed this to happen, it’s the government’s systems that failed, it’s the government that failed to deal with the end problem effectively, it’s the public who got saddled with it.

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