Northern Wreck - Making money whilst the clouds gather in the City

The Treaury has issued a regulatory announcement regarding Northern Rock " HM Treasury, on behalf of the Tripartite Authorities, today announces the basis on which the Tripartite Authorities are taking forward discussions with the Board of Northern Rock ...." which you can read at the LSE website.

The Treasury have also issued a bland self congratulatory Press Statement on their Website which sensibly glosses over the fascinating detail of the results of burning the midnight oil in the City.

Probably the most notable feature of these announcements is the continuing delay, dither and extended window provided for City "advisors" , a mixed bag of lawyers , bankers , brokers, shysters and snake oil sales men can continue to bleed the company and the UK taxpayer of funds.

Amazingly both current private sector bidders , the bearded wonder and Luqman are charging the shareholders of Northern Rock all their costs in preparing a sutiable plan to get their hands on £25 Bn upwards of Government Funds. Those costs plus the circling cloud of advisors have probablyseen their income exceed £50 Mn since the end of August.

We are now offered a timetable .."a restructuring plan to be submitted to the European Commission by 17 March 2008 " ... "detailed proposals ... must be received bythe Tripartite Authorities by 4 February 2008" , very much at odds with the hasty weekend decision to offer tax payers money to fund the criminal Directors, who issued fraudulent accounts, issued dividends they couldn't pay (which had to be stopped on Gubment advice) and enriched themselves in various other ways.

It is worth noting that the interim results which contained and sustained that dividend payment were issued on July 26th , 25 days after their half year end - such was their haste to take advantage of the Basel II agreements on Capital structures.

Sacks of Gold have now come up with a wizard wheeze that converts the current Taxpayers loans with the issue of bonds guaranteed by the taxpayer ... and sufficient funds to continue trading. A total exposure for the UK taxpayer exceeding £50 Bn. and maybe even more.

Meanwhile as this leisurely fumbling and bumbling , evasion and failure to make decisions continues ..."The existing HM Treasury guarantee arrangements remain in place. Savers' money remains safe and secure." ... any saver (and indeed shareholder) with any sense will have withdrawn their dosh and done a runner long, long ago. Evidently no-one elses's money is safe or the Treasury would have said so.

A simpleton's guide to Brown / Balls / Darling / Sack of Gold wizard scheme.

1.Bundle whatever assets are left in Norther Wreck over which anyone else has prior claim (Granite and SIV's ect) "residential mortgages, unsecured consumer loans and
certain investment-grade securities," the Treasury describes this disparate collection of near assets.

2. "A financing vehicle" would fund the purchase this ragbag by "the issue of notes in the capital markets" ..."guaranteed by HM Treasury " ... for which HM Treasury gets first dibs ..." a first priority interest in the asset pool" when it all goes tits up (hopefully after the next election)

3. Naturally conditions apply for the lawyers to earn vast fees (again) ..."a robust
and acceptable business plan" Ho.Ho.Ho. "the documentation would need to contain appropriate covenants in favour of HM Treasury to protect its interests " etc., etc., Luvvly Jubbly.

4. "ownership of the company and fulfilment of its management roles by suitable persons" ... No wonder the bearded wonder is not actually a Director of Virgin Money (However that illusory and much traded company is currently defined / valued / owned / managed )

5. HM Tresury Equity Participation: "HM Treasury would require an appropriate share in
potential upside equity returns of the company." Ho.Ho.Ho.

6. Let out clause ..."Implementation of the financing structure would follow receipt of the necessary state aid authorisation." Built in blame of those nasty faceless bureaucrats in Brussels.

7. CONTINGENCY PLANNING (Note the caps) Prudence has been at work again ..." the Government would bring forward legislation which " ...."transfer Northern Rock's share capital, including its preference shares, into public ownership"

Finally, if the dreaded "N" word has to be used ..."In the event of Northern Rock being brought into temporary public ownership, it would be managed on arms' length terms, as a commercial entity, by a newly appointed experienced and professional management team." ... which makes one wonder why this route is currently not a viable or sensible one ... albeit as Vincent Cable endlessly points out it is the "least worst option".

To keep the Labour MP's happy (and no doubt Labour voters in the North east ) ..."Any decision or announcement to take Northern Rock into temporary public ownership would also address the future of the Northern Rock Foundation."

Goldman Sachs International ("Goldman Sachs"), " is acting as financial adviser to members of the Tripartite Authorities " ... and is adding vast sacks of gold to their stores ... why worry ? Why hurry ? When you have found a cow to milk ... keep on milking it.

PS : Toni Fabuloso has just appeared with the coffee and remarks, " If I want to lend money secured by HMG - I can buy Gilts ... and any capital gain is tax free ". The mention that HMG is talking of "potential upside equity returns of the company" is met with a snort.

Sharp lady ... and makes a very fine bacon buttie .. the sounds and smells of which are happily apparent....

PS : The Daily Mail calculate ( how, they don't explain) that Sacks of Gold could clear £25-£50MN from brokering such bonds ... naturally of course there will be a Rights issue , new shares issued which Sacks of Gold and the rest of the City will boost as the new revitalised, sooper dooper , get in at the beginning , fill ya boots for the savvy investor and stuff (yet again the credulous and the "smart money" investors a little bit down the line. fees, fees, and yet more fees.

Don't think of Northern Wreck as a disaster - as Churchill said of Dunkirk it provides a "springboard for opportunity".

UPDATE 5.30 pm BST : Chancellor of the Exchequer - Darling interviewed on BBC4 "PM" admits after much harasing byEddie Mayor that the taxpayers loans / exposure / guarantees are without limit on time and value.

FSA stands by as NR shares increase in value by 33% as a result of overnight statement to 94 pence (ish) .. how can anyone believe there is a "normal" market" in the shares ?

UPDATE : 11.30 pm BST Read Richard Murphy at Tax Reserch on the ultimate and useless Paradox ..."The guarantees will only be called in if Northern Rock has made further losses, but at that same point in time it will not have the resources to pay either the fees or interest due to the government. As such the claimed benefits of this deal exist only on paper, they can never be realised."