Halifax goes down with all hands!!

The considered, precise view on the Halifax (HBOS) rescue by Lloyds TSB can be found on a good story carried by FT.Com http://www.ft.com/cms/s/0/d7fa43e0-8496-11dd-b148-0000779fd18c.html?nclick_check=1. This blog will muse on what was the glory of an UK mortgage bank with a balance sheet of £600bn.

For instance, the share price performance of Halifax was pretty dire and signalled major operational shortcomings. It must have been dire to consider a merger, sorry a takeover by Lloyds TBS, a bank, which has grown by mincing companies. Halifax board members and executives will know that they will not have much of a future in the combined group unless a leopard has changed its spots.
www.searchaccountant.co.uk
Founded in 1853 at the Old Cock Inn in the Yorkshire town of Halifax, the institution grew from a building society to a major financial group cemented with the acquisition of Bank of Scotland to form HBOS. I did have the shares from the demutualisation of the building society but had to sell at around £4 due to household necessities. I also had a current account, which paid excellent interest but I was getting disturbed by sales calls from Halifax staff trying to sell insurance etc.

For many years Halifax was in competition with Abbey National, which is now owned by
Banco Santander of Spain. Ironically, Lloyds TSB tried to acquire Abbey National in 2002 and now must be having a wry chuckle with the start of the process to buy the Halifax, which has a market leading 20 per cent of UK housing loans.

Apparently, UK Prime Minister Gordon Brown has been involved in the negotiations since the deal will get a waiver from competition problems. However, I don't know what the European Union will think of that. Yet, speed is required for the transaction to go ahead and I don't think the British government would be interested in nationalising Halifax following its rescue of Northern Rock.

It looks like that Miliband is really going for it!!

It looks like that David Miliband is really going for it with his challenge against UK prime minister Gordon Brown. The Daily Telegraph reports that Miliband has lined up Geordie MP, Alan Milburn to become
Chancellor of Exchequer, which would at least put Alistair Darling out of his misery.
Things are so bad for this government, which likes nothing more than impose taxes
on England, is talking about a possible suspension/deferment of the hated stamp
duty.
I am changing my mind about David Miliband. At least he is going for it. Normally, his lack of Labour Party support would be fatal for the tall, bright, young man. However, maybe a lot of MPs, including Brownites, would be pondering if it is worthwhile voting for a dour Scot, who goes on about African poverty all the time, while raising stealth taxes!! Whatever did happen to my occupational
pension?
As for messes it looks like Northern Rock, the Geordie/Labour bank, could be a real corker. Masssive losses and an emergency capital injection of £3bn does not make pretty reading. I wonder how the expensive talent at Northern Rock are thinking about how to get out of this hole. It could be
a run-off solution, which would not be nice. One local source says that seven thousand jobs are at stake. To rescue them might need a really low break-up bid. But the mortgage book, with growing arrears, looks horrible.
PS. David Miliband did not put up much of a challenge while Northern Rock has been joined by Bradford & Bingley and the Lloyds TSB proposed takeover of HBOS (Halifax).

Northern Rock revisited!!

I have been reading in the Daily Mail extracts of Alex Brummer's book on the collapse of Northern Rock. It was interesting that the British government did not really want to deal with Richard Branson, who it suspected would make pots of money from any acquisition. The nationalisation option has safeguarded Northern Rock but it is becoming a smaller bank and is no longer the flagship institution of the
north-east of England.
www.searchaccountant.co.uk
I still wished I had not bought shares in the Northern Rock. I was dimly aware of the profit warning and I thought the shares were a buy, although they had come down sharply from a recent twelve quid high. However, nobody's fault but mine. I accepted there could be a loss. I don't rate the chances much of Northern Rock shareholders of getting significant compensation. Railtrack shareholders did not do at all well
with the government.
Alex Brummer says the £100bn liability of the Northern Rock rescue hits the government's fiscal rules while New Labour has allowed the economy to be
credit-fuelled.

Bradford and Bingley - AARRGGHH

Having owned up to an interest of 250 shares in UK mortgage bank Bradford and Bingley held by my wife, I think I will share with you, my readers, the painful
consequences of this stake. The shares are trading at around the 67 pence level
after recently reaching over four pounds. Why did'nt I sell in time? One reason the shares were held by my wife and were not for me to sell. The second reason is that as she got the shares for nothing, it made some kiind of sense to hang on.
Although the share price performance is painful, Bradford and Bingley can be complimented for taking steps to avoid a funding problem, which sank
Northern Rock.
www.searchaccountants.co.ukShould B and B shareholders take up the capital raising operation? Investors have to decide in line with their individual circumstances. I hope they do take up the operation, since this would further bolster the capital strength of the mortgage bank, which has been hit by buy-to-let arrears. Long-term, it looks like U.S group
Texas Pacific will decide the future of the UK institution and they are pretty hard-nosed.
Apparently, the City is pretty annoyed by the shambles at Bradford and Bingley. I do get the sense that the whole affair has a lot more to run.

Bank of England trundles to the rescue.

After the European Central Bank (ECB) poured liquidity into the continental banking sector last August, the Bank of England has decided to trundle to the rescue of the banks with a £50bn package. Those wonderful institutions, full of overpaid executives, will be able to swap mortgage loans and credit card balances for
UK government bills. Apparently, this will encourage the banks to lend to each other.
http://www.bankofengland.co.uk/publications/news/2008/029.htm
One story is that the package would have helped stave off the Northern Rock collapse.
However, this has been denied, I think by Bank of England sources, who said the Newcastle-based institution was far too gone.
People get the feeling that Bank of England governor Mervyn King wanted the commercial banks to suffer a bit of pain and maybe that will still happen. I wonder if the banks will get away with raising dividends.

Mervyn King, Governor of the Bank of England, said “The Bank of England’s Special Liquidity Scheme is designed to improve the liquidity position of the banking system and raise confidence in financial markets while ensuring that the risk of losses on the loans they have made remains with the banks.”

Does Mervyn King want to support UK banks?

Does Mervyn King want to support UK banks? I don't get the impression he does.
Following the internal audit by the Financial Services Authority (FSA) on the
Northern Rock affair, it transpires that the regulatory body had the impression that the Bank of England would intervene in the interbank market at the crucial time.
The central bank decided not to and Northern Rock found itself bust. As a former
shareholder in the Newcastle-based bank I did not mind taking the hit on the
shares when I sold but I wished the Bank of England had been a bit more proactive
like the European Central Bank (ECB) and the U.S Federal Reserve.

Yesterday, the Bank of England governor was waffling on about hubris. Mervyn King
wants the bankers to pay for their mistakes but this probably will not happen so as
to protect the banking system. He is probably annoyed as the rest of us over Barclays Bank paying one of its staff £21m. However, it is unlikely this will
take place next year.

Altmann warns on Northern Rock pension gap.

Money Marketing cites pensions campaigner Ros Altmann, who says that the trustees of
the Northern Rock pension scheme must take advantage of the bank's nationalisation
by asking the UK government to fill the estimated £100m deficit. Altmann says any
future sponsor will not match the government in terms of strength.

Merry Xmas and Happy New Year!!

I wish all the readers of Accountancy Distilled a Merry Christmas and a Happy New Year. I hope 2008 will be a prosperous one. This year I exchanged the proceeds from
the takeover of Newcastle United to buy into another Geordie success story Northern Rock. I eventually sold after taking a pretty savage hit. I want the bank to survive
as an independent institution, since it is very important for the north-east of England.

Looking back on my blogs led me to do some editing on the footie ones, ie deleting
ones like "Blue Moon", which charted the improbable defeat of Manchester United to their derby rivals Manchester City. I can't believe how well Sven has started.

Postcript: How would I know that Sven would sacked by the Thai owner?

It looks like Northern Rock is facing nationalisation!

It looks like Northern Rock, the failed British mortgage lender, is facing nationalisation and then a quick sale by the UK government. I have the gut feeling that Virgin Money and Olivant will not be able to borrow enough to finance the deal.
A deal has to be finalised by the middle of January.

Bank of England governor Mervyn King has made public his displeasure at the shareholders for making the rescue operation more difficult. Apparently, one
shareholder wants £4.10 a share for Northern Rock, if it goes for nationalisation.
This contrasts with the opposite view that the equity in Northern Rock has already been wiped out and so the realistic share price is zero.

If you have any CGT problems over your holding in Northern Rock, then you might need an accountant and a local one at that.

I wonder if Northern Rock will be nationalised?

I wonder if Northern Rock will be nationalised. In the press the move would be seen as a temporary one to help the sale of the Newcastle-based bank. It would certainly
facilitate the sale of the £100bn plus mortgage book but it would not look good
if the nationalisation was a long-term move. I don't see Alistair Darling as a de facto chairman of an UK mortgage bank.
The British chancellor has better things to do such as fiddling around with capital gains tax (CGT), which still has not been sorted out yet.

Northern Rock shares are trading under a pound.

It is amazing to think that quite recently shares in UK mortgage lender Northern Rock were trading at over £12. Today the price is just under a pound and with a further fall in view with the demotion of the bank stock from the FTSE-100
index.

The Tories are opposed to a nationalisation of Northern Rock. The Lib-Dems want a temporary nationalisation so that the institution can have time to sort out its problems. These involve being proped up by the Bank of England,which must be tearing its hair out, with a £25bn loan.

One factor is the number of Labour Members of Parliament in the North-East of England, who would be unhappy about any radical surgery to Northern Rock. However, the reality is that the bank is becoming increasingly frail with the loss of retail deposits despite the guarantee of full protection. This just leaves the £100bn mortgage loan book, which is unlikely to be rock solid, given the high loan values Northern Rock was giving to customers.

The preferred bidder is Virgin Money, which is benefitting from its brand name in proposals to turn Northern Rock around. Richard Branson is known as a tough negotiator but it might be better to finalise a deal with him than go for the option of nationalisation.

Daily Telegraph investigates Northern Rock.

The City staff of Daily Telegraph has carried out an investigation into the September collapse of Northern Rock. On September 9th Chancellor Alistair Darling
felt unable to overrule Bank of England governor Mervyn King, who was refusing to
accept the request of £30bn from Lloyds TSB. This was for central bank funding to
to support Lloyds TSB's rescue bid for Northern Rock. The Newcastle-based bank
now has received taxpayer funds £24bn. There have been calls that to protect
these taxpayer funds Northern Rock should be nationalised.

Virgin Money bid for Northern Rock!!

The Virgin Money bid for Northern Rock could see the former building society
pay the Richard Branson enterprise a percentage of annual revenues for the use
of the brand name. As part of a 20 year deal the figure could reach a total of
£200m. Virgin Money is the preferred bidder.
However, RAB Capital, which owns 7 pct of Northern Rock, does not think the
Virgin Money bid offers value and will reject it.
In today's Daily Telegraph Jeff Randall criticises the Richard Branson bid saying
Northern Rock shareholders will be funding their own rescue.

You would not adam n' eve it!!! HMRC.

Well, I have to admit that I am one of the affected by the security breach
at Her Majesty's Revenue & Customs (HMRC)
and I am not happy. Obviously, bashing together the Inland Revenue and the
Customs by then Chancellor Gordon Brown was a bit of a gamble, since it
brought together two organisations with a different ethos. Commentators
warned that the Revenue would become less user-friendly.

UK Chancellor Alistair Darling looked in a terrible state. The Northern Rock
mess is getting messier and Darling is the one, who has to sort it out.
Suddenly, the British taxpayer is on the hook for nearly a thousand pounds
each.

Jeff Randall does great article on Northern Rock!

The Daily Telegraph's Jeff Randall has done a great article on the debacle of Northern Rock, which is being faced by British prime minister Gordon Brown. Randall regards as unlikey that Northern Rock will get any value for their shares.
Randall makes a telling comment "Brown is trying desperately to steer clear
of the crime scene, while maintaining the fiction that taxpayers' interests are protected."

This was from yesterday's Daily Telegraph. In today's the supposed free market Financial Times, there was an editorial call for the nationalisation of
Northern Rock.

In any event I think the Northern Rock shareholders are in a bit of a predicament,
although some clinging to hopes engendered by the interest of Richard Branson's
Virgin Group.

Victor Chu = famous Liverpool supporter!!

To show what a globalised world we live in, Hong Kong financier Victor Chu supports
Liverpool FC, whose supporters are sworn enemies of Manchester United. I suppose
I betray my southern roots by not minding too much about the Scousers. John Barnes
was one of the best players I have ever seen both at Watford and at Liverpool.

As Frankie Howerd would say, I digress. Mr Victor Chu is one of the backers of
a possible bid by Richard Branson's Virgin group for part of the Geordie bank
Northern Rock. One problem about any bid is that the Rock seems to need an
awful lot of funding from the Bank of England. At least Mr Branson thinks there is something worth saving at Northern Rock. Without any bid interest it looks like the Bank of England will have entered
the mortgage business.
I am surprised that Mr Adam Applegarth is still at the helm of the venerable
Northern Rock, since the funding requirements are so large thereby quantifying
the size of mess it is in.
Mr Chu, of First Eastern Investment Group, obtained a law degree from University
College London (UCL), and might stand a chance of understanding the famous
Geordie accent.
It is a shame that there has been no interest for Northern Rock from conventional
bankers Lloyds TSB notwithstanding. If Citigroup or Banco Santander made an offer,
they would be welcomed with open arms.
I am no longer a Northern Rock shareholder.

Northern Rock yet again!!

Sorry to revisit Northern Rock yet again but the weekend press has got me
thinking. It looks like a lot of people are guilty of 20-20 hindsight similar
to the collapse of Polly Peck, where one factor was the probing of the published
accounts by a Swiss German investor. If it was not for the credit crunch,
Northern Rock would still be around. If it was not for the Bank of England refusing
liquidity to help the interbank market, in constrast to the U.S Federal Reserve
and to the European Central Bank (ECB), then again the Newcastle-based institution
would be still with us. It looks like Northern Rock was hit by a perfect
storm.
However, Alistair Blair writes a perceptive piece in the Investors Chronicle, which
questions the famed low costs of Northern Rock and notes that its financial
strength was compromised by its reliance on short term borrowings rather than
customer deposits. Blair says the audit report could have been complemented by
a validation report, which would have pointed out its future financial
problems.
In the blame game nobody comes out very well but I thought Chancellor Alistair
Darling did put his head over the parapet in a media blitz. Some commentators
say Northern Rock depositors ignoring Darling's calls reflected the loss of trust
in politicians. Perhaps more of a factor was scrutiny of the deposit compensation
scheme. This led to a realisation with its lack of protection for relatively
minor sums.

Thank God it's Friday!! Mourinho and Northern Rock

I suppose the ramifications of Jose Mourinho leaving Chelsea and of Northern Rock
closing down will go on for a while yet.
If Chelsea are serious about winning the European Champions League then it would
have made sense to retain Mourinho this season, since he has the expertise and experience.
However, I got a sense that Chelsea's tactics were falling short and
other teams were getting better at facing them. A loss to Aston Villa and
a nil-nil draw to Blackburn Rovers contrast with performances in the previous title winning seasons.

I know that Northern Rock is still open to business as stated by its CEO
Adam Applegarth but the possible solutions do not look very palatable.
A competitor could make a low-ball bid but I am sure that the European Commission
is itching to get involved in investigating any possible solution.
In the blame game Bank of England and FSA board member Sir John Gieve is getting
a bit of a kicking. He had the temerity apparently not to read the Northern Rock
interim statement in July and to go on holiday to France when he knew about
the crisis.

Banking regulation has failed in UK!

It looks like banking regulation has failed in the UK with Northern Rock (NRK.L)
hitting the rocks. It looks like Bank of England governor Mervyn King has not
played his hand very well. He is looking isolated but he had problems with the
tripartite regulation of the Treasury, the FSA (which monitors banks) and the
Bank of England, which spends its time spouting on about inflation (CPI or RPI
anyone). Gordon Brown was responsible both for the tripartite regulation framework
and the adoption of the CPI, which excludes interesting things like mortgage
costs.
I think Mervyn is an Aston Villa fan, which makes him a romantic. In an imaginary
world one could make the case for letting banks fail to punish them for
irresponsible lending but practising the theory does not make a lot of sense.
The Europeans and Yanks must be laughing their heads off. They can't wait
for Gordon's next lecture on economic stability.

Northern Rock part two.

The appeals for calm have gone unheeded by Northern Rock savers, who today
(Monday) have queued up outside branches to get their money out. It has been
estimated that £2bn has already been withdrawn. The blame game is now being
played out with Bank of England governor Mervyn King apparently one of the
culprits.