"“We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried.” "

Chinese premier Wen Jiabao 12th March 2009

""We have a financial system that is run by private shareholders, managed by private institutions, and we'd like to do our best to preserve that system."

Timothy Geithner US Secretary of the Treasury, previously President of the Federal Reserve Bank of New York.1/3/2009

Friday, September 21, 2007

"BackNorthernRock" website and sueing the Directors - opposing views on Northern Rock wreck

Someone has set up a website BackNorthernRock to support Northern Rock PLC and is encouraging people, particularly in the North East to open Deposit Accounts with the company.

Should anyone be considering such action they might wish to consider the recent history of the company and it's Directors, Accounts they have prepared and published, plus the Dividends declared and soon payable.

On 25th July 2007 (see Co. website) the Directors of NR issued Interim accounts for 6 months to 30th June 2007.

They declared profits of £296.1 million up by 0.7% compared with H1 2006. Statutory profit attributable to equity shareholders of £188.2 million, up by 0.2%

They declared an Interim Dividend per share of 14.2p (2006 interim - 10.9p) - an increase of 30.3%

All this implied solvency of the company and gave no indication of any problems in trading - indeed the reverse ...

Record H1 gross lending of £19.3 billion - an increase of 30.5%, with record H1 net lending of £10.7 billion - an increase of 47.3%

Share of UK gross mortgage lending of 9.7% and net mortgage lending of 18.9%

Total underlying assets of £113.0 billion - an increase of 28.3% from June 2006 underlying assets of £88.0 billion. Statutory assets of £113.5 billion, growth of 27.8%

Credit quality remains robust. 0.47% of mortgage accounts 3 months or more in arrears (31 December 2006 - 0.42%) - around half of industry average

Now we are told the Directors knew on August 9th of problems in raising loans and almost immediately advised the BOE and FSA.

This was 2/3 weeks after producing the interim accounts and declaring a dividend (and prewsenting an extraordinarily rosy picture of recent history ) - which the company struggling with liquidity will no doubt be paying to shareholders in the near future.

This implies that the company was, when the accounts were issued and dividend declared, insolvent - and even more so when they approached the BOE / FSA.

There are two tests of solvency ;

1. Inability to pay debts as they become due.
2. Insufficient assets to cover liabilities.

(Bowyer and Dyer practice punch up expected between all the people denying responsibility for Northern Wreck) Northern Rock borrows money wholesale and lends it to people to buy houses. Due to the interbank rate (LIBOR) now exceeding Base Rate by over 1 % their sums don't add up. Loans are due for repayment and cannot be replaced = without recuorse to the BOE. Can they pay their debts as they become due ? - NO . Then they are insolvent.

In UK law, the people who decide that a company is solvent / insolvent are the Directors. When they judge themselves insolvent they are obliged by Company Law, to undertake certain legally prescribed steps, which effectively places control of the company out of their hands - into those of receivers, administrators.

If the BOE hadn't stumped up, the Directors would have had to file for Administrators to be called in. Period.

If the BOE hadn't stumped up, the Directors could not continue in business as they had lost their ability (and confidence of lenders) to raise capital to continue to fund their loans. Period.

That is the simple, clear, transparent unvarnished TRUTH.

It is not the duty of the FSA to determine solvency / insolvency, they do not have the time, staff, expertise, legal / statutory responsibity. Their only source of information is the Directors the Company.

Finally even with the shares trading in last hour at around £2 the valuation placed on the assets by the Directors in the Interim account were wildly incorrect - even fraudulent.

It is worthy of note that Standard & Poor's re-rated (Trans : buried ) Northern Wreck's undated subordinated debt by four levels to junk. Northern Rock's 200 million-pound 7.053 percent undated subordinated bonds trade at 75% percent of face value currently. (Pic. Martins does a Mervyn King somersault)

Furthermore it is increasngly evident that these so called assets / funds held by NR ...

"As announced on 20 August 2007, Northern Rock only has a £75 million direct exposure to the US sub-prime market which is all rated AAA, and a £200 million
exposure to the US CDO market, within which there is indirect exposure to US sub-prime.

We also have £325 million of investments in a number of Structured Investment Vehicles (SIVs)of which £305 million is bank sponsored. Included in the £200 million of CDOs referred to above is a modest exposure of £22 million of SIV "Lites "

... are a Northern Wreck Crock of shite and at best can be priced at 10 cents on the, dollar wiping out any profits for this Financial Year - unless the Directors in a sudden and belated fit of honesty decide to cancel the devidend decalred and re-issue the Interim Accounts.

Whilst their support for the Directors is to be admired, those behind this action are either ignorant of the facts or sadly self delusional.

There may of course be another explanation how a company's shares were trading at £11 (giveing a NAV of £4Bn) when they prepared their accounts on June 30th and are changing hands at less than £2 (NAV 800Mn.) and no buyers can be found, even after massive , virtually unconditional cash support (excepting the shite listed above) by the BOE, political pledges and unique guarantees by the Chancellor of the Exchequer.

It's therefore no surprise that the Daily Telegraph reports today that David Greene, head of litigation at law firm Edwin Coe (who raised a claim for 50,000 railtrack shareholders) is assembling a class action case for some 30 shareholders - as he explains ..

"The question is were people buying stock at an excessive price bearing in mind what the company knew at the time. And whether that information should have been made available to the market and what the effect of making it available would have been. My guess is the share price would have dropped quite dramatically."

(Alan Shearer - new investor in NR - he'll need those sharp elbows when he comes to collect his deposit funds) Apparently his first step will be a complaint to the Financial Services Authority.

A Northern Rock spokesman said to the Daily Telegraph: "The Bank of England and FSA were kept fully informed of the situation as the Governor made clear at the Treasury Select Committee this morning." (Trans : We thought by telling them all our problems in confidence it would not only absolve us of our duty as Directors but provide us with a "Get out of Jail Card"and lots of cash to ...er ... tide us over)

The Directors cannot claim ignorance - although in the case of Derek Wanless and Adam Applegarth, natural stupidity would appear to be a plausible defence.

Jackie Milburn, of Newcastle United, sponsored at huge cost by Northern Rock Directors - famous for having been watched by Tony Blair many years before he was born.


Stef said...

There was an excellent Freudian slip from Paddy Ashdown on Question Time last night when he only just corrected himself from talking about 'Northern Ran..." (k?)

Anonymous said...

Just come back from the Northern Rock branch in Hexham (Priestpopple).

In the bank was an old couple, they were in their eighties. They were dressed poorly and the woman was reading aloud to the man (who I presume was her husband). She was using a plastic magnifying glass to pick out the words from the leaflet, "A message from Northern Rock." The message was an explanation of the trouble at Northern Rock, penned and signed by Adam J Applegarth Chief Executive. It was harrowing to hear the Northumbrian lilt as she picked out the words from the leaflet she held in her shaking hand. I don't know whether or not she kept her money within Northern Rock.

Utterly, utterly shameful.

The local newspaper, The Journal, has also lost its independence. They write today about how we all can help Northern Rock.

Anonymous said...

Legal perspective, Potential Implications of Insolvency for Directors (being kicked to death ommitted).

Anonymous said...

Yet another narrow-minded outburst from someone unable to see the full facts.
1) This will be affecting more banks than we know (globally!) they just aren't honest enough to admit it.
2) All funds have been guaranteed - too many sheep following the flock caused the massive queues. Perhaps if anyone stopped to think about this for a moment:
We all have money in the bank. Some of us may have savings or bonds which aren't immediately accessible. We also have a current account which has instant access. If we want to access more of those instant funds than we really have and don't want to penalise ourselves by losing interest on the long-term savings our banks give us an overdraft - reason, because they know we have enough liquidity to pay it back.
Same for Northern Rock, just on a much bigger scale.
Global markets caused this, not the management.
Rock Steady!

Shutter said...

Thank you for taking the time to provide us with your detailed insight into the world of global banking.

(C) Very Seriously Disorganised Criminals 2002/3/4/5/6/7/8/9 - copy anything you wish