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back to article UK Treasury flogs Northern Rock to flirty Virgin

Northern Rock was a major victim of 2008's credit crunch - but it survived with help from the then Labour government, which nationalised the Newcastle-based money outfit. Now the Tory-LibDem coalition is shoving it back into the corporate world. Step forward bearded biz baron Sir Richard Branson, whose Virgin Money company has …

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Rapayment of bail out money

Does anyone know how this money is/has been repaid?

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It hasn't. The treasury bailed out UK banks by what was effectively a forced rights issue. The treasury now owns most of the stock of RBS and quite a lot of Lloyds Banking Group. The money it used to purchase this new stock then became capital for the troubled banks to use as they saw fit to manage or write-off bad assets or increase their liquid holdings.

So there is nothing to pay back. It was a transaction. Cash for stock.

The treasury could get the money back anytime they want by selling the stock but they'd have to wait for the stock to rise a bit before they'd get back what they put in. With the ongoing financial crisis that isn't going to happen for a good while yet.

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Facepalm

Of course knowing the right time to sell them is near on impossible. How much interest are we paying to continue holding these shares via the UKs huge pile of debt? Are the potential gains from holding them for 1/2/5 years bigger than the costs of holding them? Will they ever get to breakeven point given the amount of banker bashing that is going on, continued euro crisis and increased regulation? The government is pretty screwed either way, people will say we either sold them too soon or too late because everyone has perfect hindsight.

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Just one question:

Did the treasury buy out Northern rock to the tune of more, or less, than £747m?

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Well

It was nationalised without reimbursement to its owners - so we "bought it out" for nothing.

(There is however the question of how much liquidity was injected and how much bad debt the government is keeping in the "bad bank")

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Has El Reg Sold Us Out!

Really surprised that the reg reporter didn't disclose the fact that the Treasury paid £1.4 billion for Northern Rock, It was really good of the government to shower such largesse on the rich by selling it for for £747m. And as usual this generosity to the rich will have to be made good by the poor through taxation.

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Anonymous Coward

Did they?

Because I didn't get anything for my shares.

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Yes they did!

From Bloomberg Business (http://www.businessweek.com/news/2011-11-17/u-k-treasury-takes-loss-on-northern-rock-sale-to-virgin.html)

'Billionaire Richard Branson’s Virgin Money Holdings U.K. Ltd. will acquire the company for 747 million pounds ($1.2 billion). Osborne’s predecessor, Alistair Darling, spent 1.4 billion pounds to recapitalize the Newcastle, England-based lender in 2008 and split it into two units. Government loans totaling 26.7 billion pounds are underpinning the bad bank, which is not part of today’s proposed sale.'

And we get to hold onto the 26.7 billion pounds of negative equity - wow!!!

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They took it off the previous shareholders for nothing; then Northern Rock issued £1.4bn of new shares which were purchased by the government, and that money went into Northern Rock to pay off debts.

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Shares May Go Up Or Down In Value!

Nobody forced anybody into buying Northern Rock shares.

Heads you win, tails we lose.

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£747 million

Is that aping the principle used by Google in their $3,141,592,653 bid for Nortel's patents?

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Possibly

But will it fly?

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£50bn for £770m

.. can I get a piece of that, too?

Isn't corruption - sorry! lobbying - GREAT!!!

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£50bn was the total UK bailout figure not Northern Rock's. Also Northern Rock wasn't bailed out as the other banks were. It was nationalised.

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ahhhh

im just moving house and new mortgage is with northern rock. i hope that doesnt fuck anything up! we still havent exchanged contracts yet!

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Happy

Lies, damned lies, and government bailout figures...

Most of the figures quoted in the press are wrong and out of date.

Northern Rock was nationalised as it didn't have the ready cash to pay the savers. It still had the assets that the savers money had purchased, and the value of those varies on a day by day basis, so essentially the government now owns those and has sold them to Virgin in this deal (of which we've only been told some headlines). We don't know which assets of Northern Rock have been sold prior to now, e.g. Mortgages repaid.

The government bought shares in RBS and Lloyds, the value of which is based on trading on the LSE. Break even for RBS is about 51p. For every 1p above that, the taxpayer is in PROFIT by about £900million (OK, so they're about 20p at the moment due to the second slump, but we were in profit briefly in 2010). Lloyds break even is about 74p.

So don't believe any figures you read about "the bailout", as most of them are ill-informed bullshit (and some will argue mine are too)

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Given the huge number of shares that the government has in RBS and LBG, any hint that the government wants to start selling them will depress the price. Coupled with the ongoing financial crisis there will be no profit on those holdings for a loooooong time.

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Sure, but

Only if they are dumb enough to sell them all at once - what you might call a Brown Gold approach...

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Anonymous Coward

"thundered thin-lipped (tax dodging, blank eyed, rubber faced, soulless automaton masquerading as a human being) George Osborne."

Fixed that for you.

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Anonymous Coward

Northern Rock - Everyone loses apart from the Government

The figures flying round about Northern Rock is another example of fiddling the figures to suit the intended outcome.

The Brown gov nationalised Northern Rock and took it into public ownership for nothing, nada zilch.

Some people might also suggest that in the current climate selling a bank is unlikely to get top dollar.

You might also wonder why the government didn't sell NR the other year when Virgin offered over twice what they have ultimately paid.

So how the government can bleat about making a loss is beyond me, but lets look at the figures.

Northern rock was split into two at the time of nationalisation, the good bank Northern Rock (NR) and the bad bank Northern Rock Asset Management (NRAM).

NR consisted of pretty much savings accounts, current accounts and the best of the mortgage book. Basically the low LTV mortgages that were in their last ten years and were unlikely to default.

Now banks don't tend to make much money on savings and current accounts, that's why they are always trying to stop free banking and push 'Paid' accounts, so it is hardly a surprise that the good bank has been making a loss of around $250m a year.

That's what Virgin have bought. They will start to offer products such as Mortgages and Insurance (which is where the profit is for high street banking) and tie that in with the existing retail operation of NR. This will probably result in a profit within the next two years.

But admittedly NR does owe the government £1.4bn. Due to government decrees as to the extent of their operations it has been unable to repay that money. It's also worth remembering that the outstanding £1.4bn is also predominantly made up of fees, rather than capital.

So who's fault is that?

Taking the bad bank now, that's all of the toxic loans and dodgy mortgages and they needed £20bn to keep going.

Well they didn't, that was actually an overdraft facility to be used should it be required, in cash terms it was closer to £4bn. But NRAM was still charged punitive rates of interest as if the full £20bn had been used.

The government also charged fees for providing the expertise to steer NRAM out of their problems.

But because the collapse in mortgages never happened (NRAM actually has one of the lowest rates of mortgage defaults in the UK market) NRAM has actually been making a tidy profit as it runs down the mortgage assets. £4bn a year at the last count, and has been making payments to the BoE of £1.5bn a year to settle their outstanding debts.

That part is still firmly in Government hands and is unlikely to be sold while they can still squeeze some value out of it.

So the Northern Rock shareholders have been screwed (Court case likely in 2012), the tax payers feel like they have been screwed and the government are making a nice profit while blaming the Labour administration.

Now you have to wonder why Adam Applegarth, the former head of Northern Rock, had to sign a fairly substantial gagging order when everything is apparently above board.

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