Northern Rock shares plunge 31%, Paragon Group drops 17%

I find the idea of insurance interesting. I think a lot of people will know that if the bank were to fail, it would take months or maybe years to get the pay out, which doesn't help if you are on a low income and need to pay the rent and buy food. It seems like unfounded panic to see all these people withdrawing money, but I would consider it if my bank were in trouble. If i lost all the money in my bank account, even if it was insured, and it's only a months wages or similar, there is a good chance i would lose my home. Just one months wages going on a vacation would be enough to mess me up. I don't even have a mortgage either, I just have a low wage, and expensive rent.

[edit on 15-9-2007 by bobafett]

The bank run has continued.

£1 billion was taken out of Northern Rock yesterday by customers. Expect it to increase today.

Experts have said customers' money is safe, but banking sources said about £1bn - about 4-5% of retail deposits - was withdrawn on Friday.

I don't blame these people for taking out their life savings or whatever. I can imagine alot of people have more than £35,000 in savings their which would mean that they could lose everything above that £35,000.

Why take the risk? If i had my money in a bank that looked in difficulty i sure as hell wouldn't let them keep it for it all to go down the pan. How many times have we been told everything is OK, only to find out next week it actualy wasn't ok.

Anyway must dash, im away to get the biggest loan off them i can. That way when they go bust i won't have to pay it back. Oh wait, it wont work like that.

The BBC business editor, Robert Peston, has an excellent analysis of the situation on his blog

It's well worth the read, as he states, Northern Rock has just enough assets (in the extreme case) to cover the cost of having to pay out to every depositor.

SKYNEWS, BBC are covering the queuing outside the branches across the UK. Looks like the bank run is here to stay, many reckon it will spread on to next week too.

Alliance and Leicester, Bradford and Bingley and Birmingham midshires are the other lenders who are now coming under the spot light. All of them faced huge drops in their share price yesterday.

[edit on 15-9-2007 by infinite]

This was bound to happen eventually, there is only so many times you can sell the same debt on!

The subprime crisis in the US has lead directly to this. NR was lending money only to pass the liability on to the subprime market in the US (shaving a little off the top along the way).

Then when nobody wanted to buy the liability, they were left with more debt than they could cover, this is why the BOE had to step in.

The exact same thing happened in the insurance market a few years ago. Everybody was becoming a name in lloyds, and trying to make money from buying and selling risks there. This was fine untill somebody had to pay!

NR made the right move here, by seeking help quickly, the FSA and the BOE have obviously looked into them and decided that they are fit to continue trading. Other banks such as BCCI and Barings did not receive the same assistance.

The worrying thing is that this could be the tip of the iceberg, Barclays has had similar troubles, but was able to move funds around to cover the liability.

It will be interesting to see if FSCS raise their levy for this year from 94 million, to cover any possible insolvency. I would use their levy as a first sign that something bad is going to happen.

I just hope that all that gold that Mr Brown sold is not going to be needed!

Originally posted by DeepCoverUK
I just hope that all that gold that Mr Brown sold is not going to be needed!

Yeah, I hope so!

If anymore lenders start having problems, we could have a HUGE bank rank.

Northern Rock bank run is expected to continue on Monday. Customers who don't get seen today said they will come back next week.

The market isn't going to open up with a smile on Monday

Is anyone watching BBC News right now?

They are reading out e-mails from viewers, some of them are pretty funny, and others quite interesting points of view. Stuff like:

"Sensationalist media causing panic."
"Someone engineered this to cause collapse in order to buy the bank out."

Originally posted by bobafett
"Someone engineered this to cause collapse in order to buy the bank out."

Not beyond the bounds of possibility. Whilst I have never seen any convincing evidence, I have seen the theory that Nick Leeson was paid to crash Barings back in '95. Barings had long been a rival of the Rothschild empire, and the fact that those people have been ultimately behind many of the most crucial turning points in modern human history (such as, for instance, the formation of the state of Israel, the founding of the Federal Reserve and ownership of the Bank of England) suggests they'd have zero qualms about bringing down an old and "respected" (insofar as bankers can be truly respected!) bank and destroying the lives of however many people relied upon that bank. That Barings was the personal bank of the Queen suggests that their clientele were not the type of people whose lives would be destroyed by the fall of the bank, but you get my meaning...!

Originally posted by bobafett
Is anyone watching BBC News right now?

They are reading out e-mails from viewers, some of them are pretty funny, and others quite interesting points of view. Stuff like:

"Sensationalist media causing panic."
"Someone engineered this to cause collapse in order to buy the bank out."

Did you see the interview with the expert talking about a possible depression in certain parts of the UK economy.

That wasn't a good 15 minutes to listen too.

Originally posted by DeepCoverUK
The subprime crisis in the US has lead directly to this.

I still don't see how this is the U.S.'s fault. It appears to be that UK lenders got into the same trouble as U.S. lenders did. Doesn't mean that the U.S. is responsible for the problems.

Haha,

I don't know who is to blame, who ever decided that enough was enough at the end of the chain!

Probably some chinese guy decided he didnt want to buy anymore of these debts.

This caused the subprime problems, which meant that the people there were unwilling to buy extra debt from Northern Rock.

Northern Rock and other lenders in the subprime market were just middle men, loaning out the money and then selling on the liability to someone else.

With a Mortgage with NR, probably 5% of the liability comes from them, 5% comes from a US bank, and the rest of the debt belongs to the Chinese bank. There could be many more in the chain.

I dunno if I am that good at explaining. Say if I lend you $1 million at 6% interest, but then borrow the million from somebody else at 5%. I get to keep the 1% interest for myself

All the problems have occured because whoever was buying these risks decided it was a bad idea to take any more on, with the rising base rate leading to more bad debt.



[edit on 15/9/07 by DeepCoverUK]

Originally posted by djohnsto77
I still don't see how this is the U.S.'s fault. It appears to be that UK lenders got into the same trouble as U.S. lenders did. Doesn't mean that the U.S. is responsible for the problems.

Yes, this is true.
This is a UK lender caught up in the credit crunch. We REALLY can't blame the United States for this one.

A side effect of the run on the bank has occured. On-line costumers cannot access their accounts. The site is overloaded.

news.bbc.co.uk...


Caught in a Catch-22.

Yeah, this part is worrying too...

Northern Rock has not confirmed how much money has been withdrawn from branch savings accounts.

One paper reported up to £12 billion has been taken out

[edit]

In a report today, the Sunday Telegraph suggests that the bank is already preparing for a sell-off.

The newspaper says that one plan being discussed by City bankers is to break up the company's £100bn mortgage book and distribute it among other lenders.

news.sky.com...

You wouldn't do that if the business was solvent. What could happen, is your mortgage being passed on to someone else i.e Northern Rock cannot afford to have them on their books.

Northern Rock is covering up how bad this is.

[edit on 16-9-2007 by infinite]

[edit on 16-9-2007 by infinite]

Originally posted by djohnsto77

Originally posted by DeepCoverUK
The subprime crisis in the US has lead directly to this.

I still don't see how this is the U.S.'s fault. It appears to be that UK lenders got into the same trouble as U.S. lenders did. Doesn't mean that the U.S. is responsible for the problems.

DJ, have you read anything about this at all? NR is in a pickle because other banks are loath to lend money or buy debts. This is a direct result of the US sub-prime fiasco. The global credit crunch is as a result of the problems in America.

NR is a bank left holding the parcel when the music stopped. It has all these debts and mortgages packaged and ready to sell, but all of a sudden, no one is buying them.

They have no cash flowing at the moment, hence why the needed the BoE to give them some readies. All NR's cash is tied up in investments and loans and in order to be able to keep trading, they need a supply of cash. This was lent to them by the BoE because NR have the assets to cover the loan provided.

I would actually go out a limb and say that borrowers in the UK, whilst maybe going to 4-5 times salary, did not overstretch themselves too much. Rising interest rates have squeezed household budgets, but not by a crippling amount.

It is not like the situation in the US at all where people have just blatantly borrowed too much on Interest only mortgages and now find themselves having to pay back the capital. Those sort of mortgages went the way of the dinosaurs in the UK after the 1980's. Anyone I know who has a mortgage is on a fixed rate repayment.

Yeah, its looking bad for them now. Their name is mud at the moment.

Looks like a sell off with a change of name is the only way to go now.

I blame the media for stirring up mass hysteria regarding the loan!

The general greed in the banking system lead directly to the need for the loan in the first place.

Makes you start to consider the merits of the islamic banking system

Originally posted by DeepCoverUK
I blame the media for stirring up mass hysteria regarding the loan!

They haven't though.

SKYNEWS and the BBC always repeated the line from the government and the Bank of England.

They may have been repeating the statement from the BOE, but it has been the number one headline for several days now, making sure that first the loan and then the hysteria of people taking their money is shoved down everybody’s throat several times a day.

If my bank had to take a loan from the BOE for short term cash flow, I think I could live with that quite happily. But after seeing massive queues of people all withdrawing their money four or five times a day, I think I would probably decide to join them.

It seems that every time they show the queues they get longer. It’s not like they have anything better to report on, like a war

Sky news has always been a non starter for me, due to the obvious influence from the board of the Sky Corporation.

I used to hold the BBC news up with the highest regard, however over the last several months I have become disillusioned with their apparently biased reporting.

It’s a sad state of affairs and maybe I am wrong, but that is just how I feel at the moment.

Originally posted by infinite

Originally posted by DeepCoverUK
I blame the media for stirring up mass hysteria regarding the loan!

They haven't though.

SKYNEWS and the BBC always repeated the line from the government and the Bank of England.

Agreed. This is the sort of report that will be called sensationalist on its face. "Mortgage-lending bank in financial straits due to international lending crunch" will make you sit up and take notice if that is your bank, no matter how boring the presentation. Inevitable, the result.

Originally posted by DeepCoverUK
They may have been repeating the statement from the BOE, but it has been the number one headline for several days now, making sure that first the loan and then the hysteria of people taking their money is shoved down everybody’s throat several times a day.

SOME papers have gone O.T.T

Sadly, The Independent was a paper, which had head doom and gloom headlines, so did The Daily Mail (but it always does lol)

BUT 24 hour media stations have been good, for once.

[edit]

I take that back now, SKYNEWS and BBC are starting to chant recession every 15 mins.



[edit on 16-9-2007 by infinite]