Northern Crock shareholders on their high horse

Gabba Flamenco Crossover · Feb 18, 2008

http://www.guardian.co.uk/business/2008/feb/18/northernrock.banking

Am I missing something here? The shareholders owned the bank, they appointed the management team. No one compelled them to take a government bailout and invite the treasury into thier business.

If the value of the shares have tanked because of abstract market forces, then they got bit by the 'risk' that city types are always going on about as being crucial to the cut and thrust of free enterprise. If it was down to the incompetence of the management team, then the shareholders were asleep at the wheel.

Trying to pin the blame on the government takes 'having your cake and eating it' to absurd lengths IMO.

vimothy · Feb 18, 2008

Gabba Flamenco Crossover said:
Am I missing something here? The shareholders owned the bank, they appointed the management team. No one compelled them to take a government bailout and invite the treasury into thier business.

If the value of the shares have tanked because of abstract market forces, then they got bit by the 'risk' that city types are always going on about as being crucial to the cut and thrust of free enterprise. If it was down to the incompetence of the management team, then the shareholders were asleep at the wheel.

Think that you're basically spot on here. The shareholders deserve to lose money. The government deserve to lose an election.

IdleRich · Feb 18, 2008

"Am I missing something here?"

Not as far as I can see - surely if the government sticks a load of money in to stop the thing going under, that investment buys it an interest in the company, they've got to have a deal that means that they can get (at least some of) it back. Those kicking up a fuss were happy to take the loan but they don't want the consequences. Wanting to have your cake and eat it is exactly how I'd describe it too.

IdleRich · Feb 18, 2008

"The shareholders deserve to lose money. The government deserve to lose an election."

I agree with the first bit but not sure about the second - at least as a result of this business. Where do you think they went wrong? By bailing them out or before that by creating an environment that allowed such a situation in the first place?

Gabba Flamenco Crossover · Feb 18, 2008

IdleRich said:
I agree with the first bit but not sure about the second - at least as a result of this business. Where do you think they went wrong? By bailing them out or before that by creating an environment that allowed such a situation in the first place?

And would the tories have done any better? I don't think so.

Wierdly the lib dems are becoming the most authoritive party on economic issues, through being the only party to give their economics brief to someone who actually knows what he's talking about.

vimothy · Feb 18, 2008

I'm not convinced that this government really created the environment that allowed this to happen in the first place, but I do think that since they have tied up such a large amount of money (£100 billion?) into a foolish scheme, they deserve to lose office. Black Wednesday cost the government £3.5 billion, and is properly regarded as a disaster. When the government finally sells Northern Rock, what will the total cost to the taxpayer have been?

IdleRich · Feb 18, 2008

"I'm not convinced that this government really created the environment that allowed this to happen in the first place"

Nor me.

"When the government finally sells Northern Rock, what will the total cost to the taxpayer have been?"

Well, who knows? Hard to say until it happens, what should they have done though, let it die?

vimothy · Feb 18, 2008

Gabba Flamenco Crossover said:
Wierdly the lib dems are becoming the most authoritive party on economic issues, through being the only party to give their economics brief to someone who actually knows what he's talking about.

Just checked their website and am shocked to see a supply-side type approach to looming economic down-turn from the Lib Dems!

vimothy · Feb 18, 2008

IdleRich said:
Well, who knows? Hard to say until it happens, what should they have done though, let it die?

If the current cost is £100 billion, after the eventual sale, losses to the government will be pretty extensive. I think it's now unavoidable but I'd be interested, if someone can point me in the right direction, to read Darling's plans to recoup current losses. I mean, £100 billion!

Also think that they could have engineered a sale without needing to nationalise (and therefore lumping us all with this albatross).

IdleRich · Feb 18, 2008

"Also think that they could have engineered a sale without needing to nationalise (and therefore lumping us all with this albatross)."

Well, probably not after they'd tied in so much money. But you didn't answer my question - what should they have done?

vimothy · Feb 18, 2008

IdleRich said:
Well, probably not after they'd tied in so much money. But you didn't answer my question - what should they have done?

Engineered a sale of the company.

And that's still the plan, except government (i.e. taxpayer) exposure is now greater.

IdleRich · Feb 18, 2008

"Engineered a sale of the company."

But it needed an immediate bail-out didn't it? Doing that has lumbered them with the exposure you're moaning about, doing nothing would have meant it went under, I don't see that they had that much choice.

crackerjack · Feb 18, 2008

vimothy said:
Engineered a sale of the company.

And that's still the plan, except government (i.e. taxpayer) exposure is now greater.

They wanted to sell it. Trouble was, the bidders were using the political embarrssment of nationalisation as leverage to pay under the odds.

Grievous Angel · Feb 18, 2008

Its even worse than gabba first posited. The shareholders that were trying to screw the tax payer were hedge funds that came in AFTER rock crashed purely on the basis that the govt would be too embarassed to nationalise and therefore they would be able to squeeze a risk free bounce out of the stock. It was a scam.

All the shareholders should lose their shirts.

and If the govt had done the deal offered by Lloyds in the first couple of weeks, they could have limited exposure To 18bn. - not the 50 to 100bn we're facinng now

vimothy · Feb 18, 2008

They were very indecisive when the crisis first emerged. Obviously there were no great looking outcomes when the government took the decision to loan money to, and then nationalise, Northern Rock. However, Darling initially said that no costs should be borne by the public, which changed to most costs should be borne by the bank and shareholders, which has since changed to, as I see it, most costs not being borne by the shareholders.

And the government, when it eventually chooses to sell, will be faced with the same issue it has tried to avoid now: that the buyer will make an embarassing profit at the taxpayer's expense.

IdleRich · Feb 18, 2008

"They were very indecisive when the crisis first emerged. Obviously there were no great looking outcomes when the government took the decision to loan money to, and then nationalise, Northern Rock. However, Darling initially said that no costs should be borne by the public, which changed to most costs should be borne by the bank and shareholders, which has since changed to, as I see it, most costs not being borne by the shareholders."

Well, with hindsight I think it looks like undecisiveness but at the time it seemed like a commendable desire not to make a hasty decision. I think that they have been brave ultimately in deciding to nationalise it rather than do a quick (and bad) deal and get it off the front pages. The share-holders obviously aren't getting too great a deal from the government or else they wouldn't be moaning so much. For me, from the run on the bank the only error has really been indecision and I think that compared to hurriedly making a terrible decision that's not too bad.

vimothy · Feb 18, 2008

Fair enough, but we should mention "moral hazard": what happens in the future if / when this happens again? Was the outcome inevitable -- that the public became the principle creditor, then owner, of Northern Rock?

vimothy · Feb 18, 2008

I just don't think that the shareholders have a right to expect any kind of a deal from the government.

I also don't see the future of Northern Rock being that rosy, really, which is what Darling's hoping for.

IdleRich · Feb 18, 2008

"what happens in the future if / when this happens again? Was the outcome inevitable -- that the public became the principle creditor, then owner, of Northern Rock"

Well, that's an important question but presumably they ought to be thinking on this right now. Something happens once and you're unprepared fair enough, happens again then you had better be ready.

Gabba Flamenco Crossover · Feb 18, 2008

I agree with crackerjack, the government did what they could to sell it and bit the bullet when it obviously wasn't going to happen. You can call it indecision, but there wasn't any way to jump without pissing someone off.

vimothy said:
Just checked their website and am shocked to see a supply-side type approach to looming economic down-turn from the Lib Dems!

Vim's a Lib Dem. Ha Ha Ha! I'm ordering you a bunch of daffodils as soon as spring arrives

Northern Crock shareholders on their high horse

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