Northern Rock bought by Richard Branson

[BillyGover]

The prospect of the Northern Rock shareholders receiving compensation due to nationalisation appears more remote as time goes on. The insensitivity of the Conservative government in giving Paul Ruddock a knighthood is a reminder of the corruption at the heart of most governments. His hedge fund, Lansdowne Partners, appears to have made around £100m in 2007 from betting that the share price of Northern Rock would fall. He is also a Conservative Party donor.

[WellingtonEstates]

@BillyGover

Yes, Mr Ruddock, or should I say, Sir Paul Ruddock has given in excess of £500,000 to the Conservative Party. He is also Chairman of the Victoria & Albert Museum and has apparently been praised for his leadership and fund raising abilities in this post.

[WellingtonEstates]

George Osborne, the current UK Chancellor, has disclosed that the previous government had made a commitment to the EU, at the time of nationalisation of Northern Rock, to return the bank to the private sector by 2013. It is scandalous that the UK taxpayer was kept in the dark at the time of nationalisation by the previous Chncellor, Alistair Darling. The assets of the bad bank should have been sanitized over time and included in the sale, and this would have raised the price significantly.

[melangerie9]

If the cash price for the good bank of Northern Rock is £747m, and Virgin is contributing £50m as is the Abu Dhabi fund, plus Wilbur Ross at £260m. This only adds up to £360m. What about the shortfall of £387m ?

[WellingtonEstates]

@melangerie9

Sir Richard bowed to pressure and disclosed that the 'shortfall' will be made up by the release of what was referred to as excess capital of Northern Rock, in the sum of £250m and a further top up from Virgin Money of £150m. This disclosure has aroused a storm of controvery, as Richard Branson is not using his own money to buy Northern Rock, he is usurping Northern Rock's own cash reserves to fund his purchase. This reduction of cash reserves at Northern Rock needs FSA approval.

[melangerie9]

I am amazed at how Northern Rock could have acquired such a large amount of toxic assets. Is this because they bought derivatives or whatever from the USA subprime markets ?

[WellingtonEstates]

@melangerie9

Toxic assets are mortgages which Northern Rock granted to customers during their period of rapid expansion which ended in nationalisation in 2008. They were giving mortgages to customers who had no deposit, and indeed were giving mortgages of 125% of the property valuation. So you could get a mortgage for a house from Northern Rock, and buy a new car at the same time. Prudent building societies finance their mortgage advances from deposits made by savers.

[WellingtonEstates]

Waiting for savers to make deposits was too conservative a strategy for the management. Instead, they borrowed money from the wholesale market, that is from other banks. These were short term loans. So they were granting long term mortgages and financing this via short term lending from other banks. This was and remains a recipe for disaster, and when the supply of loans from other banks dried up, Northern Rock was placed in an impossible situation. Taxpayers funds were needed to save the bank

[BillyGover]

I am unsure what the BAD BANK is. I thought the assets of Northern Rock at nationalisation were around £100bn, which is a lot more than the £14bn of mortgage assets that you quote. Are the rest of these assets in the bad bank ?

[WellingtonEstates]

@BillyGover

Northern Rock assets were spilt into the good and bad bank. The bad bank is administered by Northern Rock Asset Management (NRAM) on behalf of the UK Treasury. This currently has mortgage loans of £80.2bn and these are the so-called toxic assets. The UK taxpayer has pumped some £39bn into NRAM and it is difficult to estimate how much of this will be returned, or even if NRAM will require more taxpayers' funds. Some mortgages and other advances have been written off.

[MaryPrudence]

It is good to learn that Richard Branson has bought Northern Rock instead of it being sold off cheaply to a foreign bank, as was Abbey National

[WellingtonEstates]

@MaryPrudence

Yes, the sale of Abbey National to Santander was a regrettable matter. As you say, Richard Branson is British and has a strong presence in the UK with Virgin Money. However, there is some doubt about his tax status, and he is also moving parts of his business empire to Switzerland in order to minimise tax. He is a vocal critic of what he considers to be high rates of tax in the UK