Britain to nationalize mortgage lender

[patientlywaiting]

I believe that ex-sd got it right “temporary national ownership” is just euphemism for “nationalize.”

How long is temporary? 1 year that could turn into 10 years.

gdcox, I’ve not followed the Northern Rock affair. But talking about moral hazard, why would the government nationalize it rather and paying-off the depositors and letting it fail. Who is the government trying to bail out here?

[4plexowner]

Or could it be that the process of selling the bank publicly would shine too much sunlight onto the worthless derivative paper being held by the bank?

“In addition, Northern Rock enters into certain derivative contracts, which although efficient economically, cannot be included in effective hedge accounting relationships. Consequently, although the implicit interest cost of the underlying instrument and associated derivative are included in net interest income in the income statement, future fair value movements on such derivatives are recorded in “Net hedge ineffectiveness and other fair value gains and losses” on the face of the income statement and are excluded from underlying results.”

http://companyinfo.northernrock.co.uk/investorRelations/results/stockEx062607.asp

The snippet above is from Northern Rock’s report on its performance in the 1st half of 2006

My interpretation of the snippet above: “We are going to count any income from these derivatives as an asset but hide all the losses via accounting legerdemain.”

[4plexowner]

Or could it be that the process of selling the bank publicly would shine too much sunlight onto the worthless derivative paper being held by the bank?

“In addition, Northern Rock enters into certain derivative contracts, which although efficient economically, cannot be included in effective hedge accounting relationships. Consequently, although the implicit interest cost of the underlying instrument and associated derivative are included in net interest income in the income statement, future fair value movements on such derivatives are recorded in “Net hedge ineffectiveness and other fair value gains and losses” on the face of the income statement and are excluded from underlying results.”

http://companyinfo.northernrock.co.uk/investorRelations/results/stockEx062607.asp

The snippet above is from Northern Rock’s report on its performance in the 1st half of 2006

My interpretation of the snippet above: “We are going to count any income from these derivatives as an asset but hide all the losses via accounting legerdemain.”

[4plexowner]

Or could it be that the process of selling the bank publicly would shine too much sunlight onto the worthless derivative paper being held by the bank?

“In addition, Northern Rock enters into certain derivative contracts, which although efficient economically, cannot be included in effective hedge accounting relationships. Consequently, although the implicit interest cost of the underlying instrument and associated derivative are included in net interest income in the income statement, future fair value movements on such derivatives are recorded in “Net hedge ineffectiveness and other fair value gains and losses” on the face of the income statement and are excluded from underlying results.”

http://companyinfo.northernrock.co.uk/investorRelations/results/stockEx062607.asp

The snippet above is from Northern Rock’s report on its performance in the 1st half of 2006

My interpretation of the snippet above: “We are going to count any income from these derivatives as an asset but hide all the losses via accounting legerdemain.”

[4plexowner]

Or could it be that the process of selling the bank publicly would shine too much sunlight onto the worthless derivative paper being held by the bank?

“In addition, Northern Rock enters into certain derivative contracts, which although efficient economically, cannot be included in effective hedge accounting relationships. Consequently, although the implicit interest cost of the underlying instrument and associated derivative are included in net interest income in the income statement, future fair value movements on such derivatives are recorded in “Net hedge ineffectiveness and other fair value gains and losses” on the face of the income statement and are excluded from underlying results.”

http://companyinfo.northernrock.co.uk/investorRelations/results/stockEx062607.asp

The snippet above is from Northern Rock’s report on its performance in the 1st half of 2006

My interpretation of the snippet above: “We are going to count any income from these derivatives as an asset but hide all the losses via accounting legerdemain.”

[4plexowner]

Or could it be that the process of selling the bank publicly would shine too much sunlight onto the worthless derivative paper being held by the bank?

“In addition, Northern Rock enters into certain derivative contracts, which although efficient economically, cannot be included in effective hedge accounting relationships. Consequently, although the implicit interest cost of the underlying instrument and associated derivative are included in net interest income in the income statement, future fair value movements on such derivatives are recorded in “Net hedge ineffectiveness and other fair value gains and losses” on the face of the income statement and are excluded from underlying results.”

http://companyinfo.northernrock.co.uk/investorRelations/results/stockEx062607.asp

The snippet above is from Northern Rock’s report on its performance in the 1st half of 2006

My interpretation of the snippet above: “We are going to count any income from these derivatives as an asset but hide all the losses via accounting legerdemain.”

[4plexowner]

From a 2004 EdgarOnline report inre Northern Rock
(http://sec.edgar-online.com/2004/06/01/0000905148-04-002681/Section15.asp):

The Board has authorized the use of derivative instruments for the purpose of supporting the strategic and operational business activities of the Group and reducing the risk of loss arising from changes in interest rates and exchange rates. All use of derivative instruments within the Group is to hedge risk exposure, and the Group takes no trading positions in derivatives.

For the purpose of reducing interest rate risk and currency risk, the Group uses a number of derivative instruments. These comprise interest rate swaps, interest rate options, forward rate agreements, interest rate and bond futures, currency swaps and forward foreign exchange contracts.

…

The benefits of using off-balance sheet derivative instruments are measured by examining the anticipated consequences of not hedging the perceived risk in terms of revenue or capital loss.

~

So, not only are derivatives a good thing, there are even more benefits to having them off the balance sheet …

[4plexowner]

From a 2004 EdgarOnline report inre Northern Rock
(http://sec.edgar-online.com/2004/06/01/0000905148-04-002681/Section15.asp):

The Board has authorized the use of derivative instruments for the purpose of supporting the strategic and operational business activities of the Group and reducing the risk of loss arising from changes in interest rates and exchange rates. All use of derivative instruments within the Group is to hedge risk exposure, and the Group takes no trading positions in derivatives.

For the purpose of reducing interest rate risk and currency risk, the Group uses a number of derivative instruments. These comprise interest rate swaps, interest rate options, forward rate agreements, interest rate and bond futures, currency swaps and forward foreign exchange contracts.

…

The benefits of using off-balance sheet derivative instruments are measured by examining the anticipated consequences of not hedging the perceived risk in terms of revenue or capital loss.

~

So, not only are derivatives a good thing, there are even more benefits to having them off the balance sheet …

[4plexowner]

From a 2004 EdgarOnline report inre Northern Rock
(http://sec.edgar-online.com/2004/06/01/0000905148-04-002681/Section15.asp):

The Board has authorized the use of derivative instruments for the purpose of supporting the strategic and operational business activities of the Group and reducing the risk of loss arising from changes in interest rates and exchange rates. All use of derivative instruments within the Group is to hedge risk exposure, and the Group takes no trading positions in derivatives.

For the purpose of reducing interest rate risk and currency risk, the Group uses a number of derivative instruments. These comprise interest rate swaps, interest rate options, forward rate agreements, interest rate and bond futures, currency swaps and forward foreign exchange contracts.

…

The benefits of using off-balance sheet derivative instruments are measured by examining the anticipated consequences of not hedging the perceived risk in terms of revenue or capital loss.

~

So, not only are derivatives a good thing, there are even more benefits to having them off the balance sheet …

[4plexowner]

From a 2004 EdgarOnline report inre Northern Rock
(http://sec.edgar-online.com/2004/06/01/0000905148-04-002681/Section15.asp):

The Board has authorized the use of derivative instruments for the purpose of supporting the strategic and operational business activities of the Group and reducing the risk of loss arising from changes in interest rates and exchange rates. All use of derivative instruments within the Group is to hedge risk exposure, and the Group takes no trading positions in derivatives.

For the purpose of reducing interest rate risk and currency risk, the Group uses a number of derivative instruments. These comprise interest rate swaps, interest rate options, forward rate agreements, interest rate and bond futures, currency swaps and forward foreign exchange contracts.

…

The benefits of using off-balance sheet derivative instruments are measured by examining the anticipated consequences of not hedging the perceived risk in terms of revenue or capital loss.

~

So, not only are derivatives a good thing, there are even more benefits to having them off the balance sheet …

[4plexowner]

From a 2004 EdgarOnline report inre Northern Rock
(http://sec.edgar-online.com/2004/06/01/0000905148-04-002681/Section15.asp):

The Board has authorized the use of derivative instruments for the purpose of supporting the strategic and operational business activities of the Group and reducing the risk of loss arising from changes in interest rates and exchange rates. All use of derivative instruments within the Group is to hedge risk exposure, and the Group takes no trading positions in derivatives.

For the purpose of reducing interest rate risk and currency risk, the Group uses a number of derivative instruments. These comprise interest rate swaps, interest rate options, forward rate agreements, interest rate and bond futures, currency swaps and forward foreign exchange contracts.

…

The benefits of using off-balance sheet derivative instruments are measured by examining the anticipated consequences of not hedging the perceived risk in terms of revenue or capital loss.

~

So, not only are derivatives a good thing, there are even more benefits to having them off the balance sheet …

[patientlywaiting]

From the article:
“However, critics said that the temporary nationalization proposed by the government could last years as Northern Rock’s new management seeks to pay back around 55 billion pounds ($107 billion) via loans from the Bank of England and deposit guarantees.”

http://news.yahoo.com/s/afp/20080218/wl_uk_afp/britainbankingnationalisationcompany_080218132113?
“It has since borrowed an estimated 26 billion pounds from the British central bank, although media reports have put the actual liability to taxpayers at 55 billion pounds or
higher.”

*

Looks like that one bank is losing just about the amount that all US banks have written off so far.

It’s unclear how much the UK gov’t will be able to sell Northern Rock for but it’s gonna be a big chunk for the taxpayers to absorb.

To put it into context the US stimulus package will cost $168 billion. Nothern Rock alone is cost the brits $107 billion or 64% of the stimulus package.

[patientlywaiting]

From the article:
“However, critics said that the temporary nationalization proposed by the government could last years as Northern Rock’s new management seeks to pay back around 55 billion pounds ($107 billion) via loans from the Bank of England and deposit guarantees.”

http://news.yahoo.com/s/afp/20080218/wl_uk_afp/britainbankingnationalisationcompany_080218132113?
“It has since borrowed an estimated 26 billion pounds from the British central bank, although media reports have put the actual liability to taxpayers at 55 billion pounds or
higher.”

*

Looks like that one bank is losing just about the amount that all US banks have written off so far.

It’s unclear how much the UK gov’t will be able to sell Northern Rock for but it’s gonna be a big chunk for the taxpayers to absorb.

To put it into context the US stimulus package will cost $168 billion. Nothern Rock alone is cost the brits $107 billion or 64% of the stimulus package.

[patientlywaiting]

From the article:
“However, critics said that the temporary nationalization proposed by the government could last years as Northern Rock’s new management seeks to pay back around 55 billion pounds ($107 billion) via loans from the Bank of England and deposit guarantees.”

http://news.yahoo.com/s/afp/20080218/wl_uk_afp/britainbankingnationalisationcompany_080218132113?
“It has since borrowed an estimated 26 billion pounds from the British central bank, although media reports have put the actual liability to taxpayers at 55 billion pounds or
higher.”

*

Looks like that one bank is losing just about the amount that all US banks have written off so far.

It’s unclear how much the UK gov’t will be able to sell Northern Rock for but it’s gonna be a big chunk for the taxpayers to absorb.

To put it into context the US stimulus package will cost $168 billion. Nothern Rock alone is cost the brits $107 billion or 64% of the stimulus package.

[patientlywaiting]

From the article:
“However, critics said that the temporary nationalization proposed by the government could last years as Northern Rock’s new management seeks to pay back around 55 billion pounds ($107 billion) via loans from the Bank of England and deposit guarantees.”

http://news.yahoo.com/s/afp/20080218/wl_uk_afp/britainbankingnationalisationcompany_080218132113?
“It has since borrowed an estimated 26 billion pounds from the British central bank, although media reports have put the actual liability to taxpayers at 55 billion pounds or
higher.”

*

Looks like that one bank is losing just about the amount that all US banks have written off so far.

It’s unclear how much the UK gov’t will be able to sell Northern Rock for but it’s gonna be a big chunk for the taxpayers to absorb.

To put it into context the US stimulus package will cost $168 billion. Nothern Rock alone is cost the brits $107 billion or 64% of the stimulus package.

[Author]

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