The inside word from the City: Northern Rock

That's the way the Rock crumbles

Mon, 18 Feb 2008 10:20:08 GMT

Just as some City pundits have been pessimistically predicting for months, Northern Rock is finally getting the nationalisation treatment. Gordon Brown and Alistair Darling are set to announce legislation this morning which will allow the government to nationalise Between a Rock and a Hard Place. Shares in the ailing mortgage lender were suspended this morning.

To say the UK Shareholders Association, which fights for the rights of Rock investors, is not amused is an understatement. The Association wants to know why the government has chosen to go down this road when there were two possible bids on the table. It reckons the only reason the government has selected nationalisation is because it believes this route offers better value to the taxpayers. But the UKSA bitterly points out that “this is equivalent to a thief telling you it offers better value to him to steal from you, than to enter into a commercial transaction with you.”

Furthermore, the UKSA also complains that not only have Northern Rock’s unhappy investors seen their investment “damaged” by the government’s “actions and inactions”, they are now set to see their property confiscated and without any compensation. And what’s more, there seems to be little they can do to fight it now, although the company’s biggest shareholders are thought to be considering legal action. Shares in RAB Capital, which owns 8 per cent of Northern Rock, dropped by almost 10 per cent in the morning’s trade.

But City commentators reckon Northern Wreck’s nationalisation is a necessary evil. “It’s absolutely the right decision,” David Buik at Cantor Index told Cityblogger this morning. “But it would be completely unnecessary were it not for our wishy-washy prime minister. Everybody in the City knows that if you have a financial problem and you don’t deal with it, it becomes a weeping carbuncle. If the government had agreed with the demands of JC Flowers for a government guarantee this would all have been done and dusted before the credit crisis. But without any disrespect, the writing was on the wall when we only got three bidders interested. And to entrust [Virgin Money] with £40bn of taxpayer’s money is a bridge too far.”

Farewell then, Northern Wreck, and Cityblogger’s sincere commiserations to those investors who will see their savings sink with her.

Are you a shareholder? Do you think the government was right to nationalise Northern Rock?

Technorati Tags: cityblogger,city blogger,Northern Rock,UK shareholders association,northern rock nationalisation,nationalisation of northern rock,rab capital,david buik cantor index,virgin money

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Between a Rock and a Hard Place

Tue, 05 Feb 2008 10:22:03 GMT

If Cityblogger wasn’t bored silly already by Northern Wreck, the saga, like some dreary EastEnders plotline, drags on. Yesterday Olivant quit the auction, disgruntled about the repayment period for the £25bn Northern Rock owes taxpayers. Olivant wanted to repay over five years, but the bonds are only guaranteed for three - although there are rumours Olivant could re-enter the fray. If not, this only leaves two proposals – Virgin Money’s and Northern Rock’s in-house bid, backed by investor RAB Capital. Northern Rock’s reputation is tarnished, and, with only 2 per cent of the mortgage market, Virgin Money doesn’t cut the mustard with some City sceptics. “If the Olivant team…looked the most credible alternative to a full scale nationalisation can’t make the sums add up then why on earth could a mish-mash team under the questionable Virgin finance banner manage it?” Argues Howard Wheeldon at BGC Partners. Northern Rock’s shares fell 1 per cent this morning.

On the plus side, the FTSE100 pushed through 6,000 again yesterday, but fell to 5,980 this morning. Perhaps financial apocalypse isn’t upon us after all! Cityblogger has fingers and toes crossed....and is now stuck in his office chair....

del.icio.us Tags: Northern Rock,Cityblogger,Olivant,Virgin Money,FTSE100

Technorati Tags: Northern Rock,Cityblogger,Olivant,Virgin Money,FTSE100

Hats off to Branson

Mon, 26 Nov 2007 12:05:43 GMT

Cityblogger has dug out his old and somewhat weather beaten bowler hat and placed it on a nice china dinner plate, along with some tasty tomato chutney, ready to tuck into if need be. He expects it will taste a lot like a combination of liquorice and cardboard - a bitter taste Northern Rock shareholders are no doubt familiar with by now.

Such extreme measures have become necessary, it would seem, since it appears The Bearded One – aka Richard Branson – could soon be the proud owner of the ailing mortgage lender. Something Cityblogger and his City pals once considered risible a few months ago, but should see taxpayers breathing a sigh of relief.

Mr Branson’s scheme is thought to have found favour with the government because of his plan to pay back £11bn of the £23bn taxpayers’ loans to Between a Rock and a Hard Place almost immediately. Laughably these funds have been secured partly by Mr Branson and his consortium borrowing rather a lot of money from other banks, although a rights issue will also be launched. This is partly robbing Peter to pay Paul - what got Northern Rock in a fix in the first place! And it does seem that Our Dickie is taking on rather a lot of risk.

The shares have been all over the place this morning, initially falling around 16 per cent to 72p and then jumping 84 per cent to 132p. But while Cityblogger has been reticent to stick his bowler under the grill until absolutely necessary, it looks likely Branson’s takeover will go through.

“The shareholders don’t have an awful lot of say in the matter if the company owes £23bn to the Bank of England,” says Jan Luthman, director at Walker Crips Asset Management. “What this is is a rights issue, which is what shareholders, such as RAB Capital, wanted. So I don’t think it’s going to meet any fundamental opposition. Virgin is probably one of the most credible brand names in Britain and that matters if you are to rescue it. You need a name the retail client believes in. I think it’s a credible bid and it has political blessing.”

However, Nic Clarke, banking analyst at Charles Stanley switched his rating on Northern Rock shares from hold to sell this morning. He says he is “wary about how politicised this issue has become” and argues that “shareholders come some way down the list of priorities” for the Chancellor’s favoured outcome. Mr Clarke believes the shares are “not for the faint hearted” and could face further challenges in the future. Too right!

There’s nothing for it - pass me the knife and fork, Tiddles.

Technorati Tags: Northern Rock , Richard Branson , Virgin Money , RAB Capital , Nic Clarke Charles Stanley , Jan Luthman Walker Crips

del.icio.us Tags: northern rock , Richard Branson , RAB Capital , Virgin Money , Nic Clarke Charles Stanley , Jan Luthman Walker Crips

Rock, paper, pebbles

Tue, 20 Nov 2007 11:16:33 GMT

Greetings! Cityblogger has been tending his garden on a relaxing week off. However in a philosophical moment, brought on by interfacing with Mother Nature/ a fine glass of Chardonnay, he set to pondering if the pebbles he’s filled his patio pots with for drainage are worth more now than his Northern Rock shares.

Shares in the sickly mortgage lender tanked by over 20 per cent on Monday to 104.2p and a further stomach-churning 38 per cent at one point in the morning's trade today to just 65p. They were also suspended this morning! Altogether, shareholders have seen 94 per cent of the value of their shares disappear since this time last year. Not what you’d expect of an investment in the banking sector and a warning to us all.

"YOUR MONEY IS SAFE WITH US!" Insists Northern Rock's website - well, not if you're a shareholder!Despite the government stepping in and supposedly rescuing NR and a handful of suitors sniffing around, nobody has yet tabled an acceptable bid for the whole entity. There are a number of players in the frame, including Richard Branson, JC Flowers, ING and Cerberus, as well as a consortium including Alfred Gooding, but many of the proposals were pitched “materially below” the share price on Friday. They may look more attractive today!

And securing a takeover deal won’t be easy. Alistair Darling told Parliament he would block any bid which wouldn’t protect taxpayers’ loans. Mmm…Cityblogger wonders if beggars can be choosers. Meanwhile EU rules on state subsidies could limit how long the Bank of England can prop up the company, and the Treasury says there is no guarantee the loans would stay in place after February. In which case, administration or nationalisation could be looming and shareholders will be the losers.

“Mr Darling reassured us that the loans are all fully secured,” says a sceptical David Buik at Cantor Index. “He must have his prayer mat out, hoping for a fairy godfather to come down from heaven and sweep Northern Rock up in his arms and take it away to be nursed back to full health. All I can see is hard-nosed business men, which eat nails for breakfast and spit rust out, hovering around Newcastle. The world of finance is not a philanthropic society and after so much government prevarication, shareholders will be larruped! Even Uncle Richard [Richard Branson] is as tough as teak and will be taking no prisoners if he lands the spoils!”

Time to wake up and smell the rust, Mr Darling. And for Cityblogger to stick those NR share certificates on the compost heap where they belong.

Technorati Tags: Northern Rock , Alistair Darling , Richard Branson , Cantor Index

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Northern Soul

Thu, 18 Oct 2007 11:47:39 GMT

Cityblogger confesses to being a closet soul fan, with a passion for the late Godfather of Soul James Brown, Aretha Franklin and the late great Otis Redding. Alas, he is often forced to pretend to prefer the champagne flute-shattering caterwaulings of Glyndebourne to impress his City colleagues.

Earlier this week Cityblogger admitted that he and his sources had some misgivings about Virgin Money’s possible bid for Northern Rock, thinking it was all a bit of a publicity stunt and unlikely to happen. But perhaps the offer could have a dollop of soul to it after all. It seems that other more illustrious figures see the logic.

In fact, Joe Lampel, Professor of Strategy at Cass Business School, reckons The Bearded One, alias Richard Branson, has not entirely taken leave of his senses. “Virgin’s declared intention of acquiring Northern Rock has surprised some observers, but close examination of the move suggests a clear strategic logic,” he muses.

In fact, he thinks a high street base would help Virgin Money attract punters who have so far avoided online banking like the plague. “Despite initial optimism during the dot-com bubble, consumers have displayed a reluctance to trust their money to pure online financial services providers,” the good professor explains. “In banking and financial services, consumer confidence is closely correlated with high street walk-in establishments. But setting up a banking and financial services network with adequate national coverage is difficult and expensive. By acquiring Northern Rock, Virgin is gaining in one fell swoop a bricks and mortar counterpart to its online operations.”

But Lampel admits it won’t all be plane sailing. “The move is not risk free. Virgin will be taking on an organisation with a severely damaged reputation," he says. "It will have to restructure the management, and deal with disaffected shareholders. Virgin's own solid reputation, however, and the trust it inspires, particularly among young people should go some distance towards remedying this damage."

If Virgin pulls it off the acquisition would make it the first pure online financial services provider to enter traditional banking.

Cityblogger has been raking through his record collection trying to find a suitable soundtrack for the acquisition. The excellent Think by Ms Franklin comes to mind and two by Mr Redding - Try A Little Tenderness and Mr Pitiful. Mmm…Although Northern Soul purists might prefer Ain’t No Soul Left In These Old Shoes by Kenny Bernard or Amen by The Impressions.

Can anyone offer any theme tune suggestions for Scottish & Newcastle, currently fending off unwelcome attention from Carlsberg and Heineken? Chin chin!

Technorati Tags: Northern Rock , Virgin Money , Richard Branson , Cass Business School , Scottish & Newcastle

Branson pickle

Mon, 15 Oct 2007 09:58:17 GMT

Since Cityblogger was a diminutive chap in short trousers he has always held firm to his mother’s sage words - “never trust a man with a beard”. And generally this advice has proved just as sound throughout most of Cityblogger‘s life in the City, as when he was a tender three year old starting A-levels at boarding school.

So he has always remained slightly suspicious of Richard Branson (Mr Branston as Cityblogger’s dear old pickle-loving grandmother used to call him) despite the man’s obvious Herculean achievements. (Incidentally, if one owns a international airline why does one choose to travel by air balloon? Highly suspicious.)

Yet it seems that The Bearded One is now offering himself and his company Virgin Money, as part of a consortium including AIG, as a white knight for Northern Rock. Indeed, Between a Rock and a Hard Place confirmed this morning press reports it is being circled by suitors. Private equity outfits JC Flowers and Cerberus are also believed to be interested in mopping up the ailing mortgage provider.

Speaking on BBC Radio this morning Jane Anne Gadhia, chief executive of Virgin Money, a former managing director of RBS, claimed there “are real synergies" between it and NR and that NR “has got a lot of things going for it” provided she can solve its problems. Ms Gadhia also pledged to keep as many jobs as possible, though of course not senior management positions. Although she admitted the Northern Rock brand would disappear under Virgin as “everyone agrees the brand is dead”. Quite.

But investors in Northern Rock might not be as keen as Ms Gadhia on Branson’s plans - the shares plunged 20 per cent this morning, although to be fair they have been anything like rock solid lately.

“Northern Rock is just a casino right now,” David Jones, chief market analyst at CMC Markets, told Cityblogger. “Even on a quiet day it’s moving in a 20 per cent range. Maybe today’s fall is sanity coming back. People are waking up to the fact that if nothing happens [on the takeover front] the company could be in trouble.”

Mr Jones and other City commentators are dubious that Virgin Money could pull off the deal. “I think it could be a bit of a publicity stunt by Branson,” he says. “If a takeover does go through Northern Rock will go to a mortgage bank, not Virgin Money.”

And certainly, for the superstitious among us, the runes might not be favourable - especially given today is the 20th anniversary of Black Monday! A sobering thought.

Technorati Tags: Northern Rock , Richard Branson , Virgin Money , CMC Markets