Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Northern Rock Bank Nationalised- Which Bank will be Next?

Companies / UK Banking Feb 18, 2008 - 01:13 PM GMT

By: Nadeem_Walayat

Companies Best Financial Markets Analysis Article

On Sunday Gordon's Darling released the statement that the UK Government would nationalise Northern Rock Bank before Mondays stock market open, as the two takeover proposals virtually guaranteed huge profits for the bidders such as Branson's Virgin group, whilst the government would have been stuck with the debt of as much as £50 billions, sat to wait patiently for upwards of 25 years for the debt to slowly be repaid if at all.

At mid-day today, Gordon Brown the British Prime minister waded in to support the decision to nationalise the bank in the face of shareholder protests, and said that the delays were necessary so as to weigh potential private sector alternatives to nationalisation.


Therefore, as I have pointed out several times over the last few months, under the circumstances the government had very little option but to nationalise the bank with a view to seeking the revenues to primarily concentrate on the repayment of the government debt as well as seeking to sell off significant chunks of the bank to hasten the process and therefore as long as there is no meltdown in the UK housing market, the government would aim to get back all of its cash over the next 3 to 4 years. Something that would not have happened with either of the private bidders.

The tactics that the Northern Rock Bank could use to cut the amount it owes to the government is to raise the mortgage interest rates on borrowers which will force the prime mortgage borrowers to remortgage elsewhere at lower interest rates and therefore clearing their mortgage debt with Northern Rock Bank. However this will result in mortgage interest rates rising across the UK mortgage sector despite Bank of England interest rate cuts as Northern Rock Bank accounts for a fifth of the UK's mortgage business.

However, the risk now is which other banks will follow Northern Rock into the arms of the Government. The UK Government has in effect increased the national debt by about £50 billions, the impact of which has been directly felt in the foreign exchange markets with the pound plunging from a high of £/$ 2.13 to the current lows of £/$ 1.94 on fears that further bailouts will lead to a surge in bond issues and hence resulting in higher long-term interest rates coupled with falling bond prices.

The reason why there will be further bank failures is because the global credit crisis is deepening as the US monoline debt default insurers face failure and thus magnify the original estimates of total bank losses of $140 billion to potentially ten fold ! That's well over $1 trillion in losses, more than enough to wipe out the capital base of many of Britain's and the worlds biggest banks! This regardless of good money thrown after bad by the Sovereign Wealth Funds.

The real initial losers are the shareholders who will probably see little more than the 90p the shares closed at last Friday. Many are declaring intentions of suing the government demanding compensation of as much as £4.25. Especially vocal are the two hedge funds that scaled into Northern Rock following the share price crash at an average price of £2.50 per share.

The prospects for the UK mortgage sector looks increasingly dire, with the UK housing market having barely begun to feel the impact from the credit crisis, lagging some 12 months behind the US in terms of the housing market trend. Mortgage banks such as Bradford and Bingley, Alliance and Leicester and even the mighty HBOS will feel the pain from a forecast downtrend of a 15% drop over 2 years as of August 2007.

By Nadeem Walayat

Copyright © 2005-08 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading, analysing and forecasting the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 120 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in