Friday 27 March 2009
Public Accounts Committee to take further evidence on Northern Rock
At 16.30 on Monday 30th March, the Public Accounts Committee will take evidence from Sir Nick Macpherson, Permanent Secretary, HM Treasury and John Kingman, Chief Executive, UK Financial Investments Ltd. Details will be posted following the meeting.
Sunday 22 March 2009
Legal action - where we are now
As followers will know, the NRSSG is not part of the legal action being taken against the Government. This is being led by the U K Shareholders Association with support from the two biggest shareholders RAB and SRM.
Althought the request for a judicial review was turned down in the High Court, they have been given leave to appeal to the Court of Appeal because of the importance of the principles of the case.
This means there will be further delay in the valuer setting to work on the basis that in effect our shares are worthless. It is likely that any valuation will also be the subject of legal challenge.
Robin Ashby has frequently expressed the view that either we want fair value (which for the sake of argument would be the net value of the business at the end of the first day of the run on the bank, £4 a share) or we want our shares back and we'll take our chances in the long run.
As the Government has injected £3 billion of equity since it stole our shares, that would put us in a similar position to other banks such as RBS and Lloyds, where the Government has underwritten rights issues and now has a large share stake but exisiting shares remain with the original owners.
Althought the request for a judicial review was turned down in the High Court, they have been given leave to appeal to the Court of Appeal because of the importance of the principles of the case.
This means there will be further delay in the valuer setting to work on the basis that in effect our shares are worthless. It is likely that any valuation will also be the subject of legal challenge.
Robin Ashby has frequently expressed the view that either we want fair value (which for the sake of argument would be the net value of the business at the end of the first day of the run on the bank, £4 a share) or we want our shares back and we'll take our chances in the long run.
As the Government has injected £3 billion of equity since it stole our shares, that would put us in a similar position to other banks such as RBS and Lloyds, where the Government has underwritten rights issues and now has a large share stake but exisiting shares remain with the original owners.
National Audit Office report on Northern Rock
Amongst the media coverage of this, Robin Ashby was featured on BBC TV Look North on Friday. The article is still viewable at
http://news.bbc.co.uk/1/hi/england/7956211.stm
http://news.bbc.co.uk/1/hi/england/7956211.stm
Friday 13 March 2009
Government's £150 billion asset purchasing and "money printing" plan
The Chancellor of the Exchequer recently lodged a paper explaining what would happen. Rather than relying on the newspapers, you can read it for yourself below. Its one and a half pages make interesting reading, including part of the justification: to get inflation back up to 2%
The private sector could benefit to the tune of £50 billion
HM TREASURY: DEPARTMENTAL MINUTE
Contingent liabilities arising from the asset purchase facility
This Minute gives Parliament further information about the contingent liabilities described in the Treasury Minute of 19 January 2009. It concerns the Asset Purchase Facility ('the Facility') on which further details were announced today in an exchange of fetters between the Chancellor and the Governor of tt1e Bank of England.
As foreshadowed in the earlier Minute, the Chancellor has authorised an extension to the Facility to allow the Monetary Policy Committee (MPC) to use it for monetary policy purposes if the MPC deems that appropriate. The Facility can be used to purchase UK Government debt on the secondary market as well as private sector assets (specified in the previous Minute). Purchases undertaken for monetary policy purposes would be financed by the creation of central bank money.
The maximum scale of the purcl1ases under the Facility has been raised to up to £150 billion, of which up to £50 billion could be used to purchase private sector assets. The purchase of private sector assets will continue as planned and the scale of purchases will not be affected by the extension of the Facility. The option of issuing Treasury bills to finance such asset purchases will remain open. If and when the MPC decides that private sector purchases should be financed by the creation of central bank money, the Bank executive will apply the same criteria in selecting those assets as if the purchases were financed by the issuance of Treasury bills. And in that case, the need to finance purchases using Treasury bills is expected to cease, at least initially. These are maximum limits within which the MPC will determine the scale of its purchases each month; the overall limits and the balance of purchases between government debt and private sector assets will be kept under review. .
If the Facility were to be used for monetary policy purposes, the MPC would decide, each month, on the asset purchases it judged necessary to meet the inflation target. The MPC would continue to be accountable for use of the Facility in the same way that it is for its decisions on the level of Bank Rate, including reporting its decisions in its monthly minutes and explaining its analysis in the quarterly Inflation Report. It will also publish a quarterly report of the transactions undertaken and, where appropriate, information on specific transactions and operations. Implementation of the MPC's decisions on asset purchases would fall to the Bank's Executive.
HM Treasury stands behind the Bank and is, therefore, providing an indemnity for the facility. As is the case for the purchases of private sector assets financed by the issuance of Treasury bills, HM Treasury will indemnify the Bank for any losses that it makes arising out of, or in connection with, the use of the Facility to purchase UK government debt and private sector assets financed by the creation of central bank money.
The risk of the indemnity being called cannot be forecast accurately. It arises partly because asset prices will fall if yields on interest bearing assets rise. But other factors could be relevant too. If the perceived iIIiquidity and credit risk attached to those assets lessens, they may appreciate in value. If the liability is called, provision for any payment will be sought through the normal Supply procedure.
The purpose for extending the use of the Facility is to enable the Bank of England to use asset purchases in order to meet the 2 per cent target for CPI inflation and stimulate the economy. To the extent that the Facility is used to buy gills on the secondary market financed by central bank money, this would be similar to the current implementation of monetary policy, except that the instrument of policy would shift towards the quantity of money provided rather than its price. The Facility also uses central bank money to purchase high quality private sector assets to improve liquidity in credit markets that are currently not functioning normally.
It is still intended that the facility will be temporary. Its closing date is not yet decided and will be announced when the Government is able to make an informed decision on the state of the markets.
I regret that, owing to the urgency of the situation as outlined above, it was not possible to give notification of this indemnity with the customary full fourteen parliamentary sitting days' notice.
HM Treasury
5March 2009
The private sector could benefit to the tune of £50 billion
HM TREASURY: DEPARTMENTAL MINUTE
Contingent liabilities arising from the asset purchase facility
This Minute gives Parliament further information about the contingent liabilities described in the Treasury Minute of 19 January 2009. It concerns the Asset Purchase Facility ('the Facility') on which further details were announced today in an exchange of fetters between the Chancellor and the Governor of tt1e Bank of England.
As foreshadowed in the earlier Minute, the Chancellor has authorised an extension to the Facility to allow the Monetary Policy Committee (MPC) to use it for monetary policy purposes if the MPC deems that appropriate. The Facility can be used to purchase UK Government debt on the secondary market as well as private sector assets (specified in the previous Minute). Purchases undertaken for monetary policy purposes would be financed by the creation of central bank money.
The maximum scale of the purcl1ases under the Facility has been raised to up to £150 billion, of which up to £50 billion could be used to purchase private sector assets. The purchase of private sector assets will continue as planned and the scale of purchases will not be affected by the extension of the Facility. The option of issuing Treasury bills to finance such asset purchases will remain open. If and when the MPC decides that private sector purchases should be financed by the creation of central bank money, the Bank executive will apply the same criteria in selecting those assets as if the purchases were financed by the issuance of Treasury bills. And in that case, the need to finance purchases using Treasury bills is expected to cease, at least initially. These are maximum limits within which the MPC will determine the scale of its purchases each month; the overall limits and the balance of purchases between government debt and private sector assets will be kept under review. .
If the Facility were to be used for monetary policy purposes, the MPC would decide, each month, on the asset purchases it judged necessary to meet the inflation target. The MPC would continue to be accountable for use of the Facility in the same way that it is for its decisions on the level of Bank Rate, including reporting its decisions in its monthly minutes and explaining its analysis in the quarterly Inflation Report. It will also publish a quarterly report of the transactions undertaken and, where appropriate, information on specific transactions and operations. Implementation of the MPC's decisions on asset purchases would fall to the Bank's Executive.
HM Treasury stands behind the Bank and is, therefore, providing an indemnity for the facility. As is the case for the purchases of private sector assets financed by the issuance of Treasury bills, HM Treasury will indemnify the Bank for any losses that it makes arising out of, or in connection with, the use of the Facility to purchase UK government debt and private sector assets financed by the creation of central bank money.
The risk of the indemnity being called cannot be forecast accurately. It arises partly because asset prices will fall if yields on interest bearing assets rise. But other factors could be relevant too. If the perceived iIIiquidity and credit risk attached to those assets lessens, they may appreciate in value. If the liability is called, provision for any payment will be sought through the normal Supply procedure.
The purpose for extending the use of the Facility is to enable the Bank of England to use asset purchases in order to meet the 2 per cent target for CPI inflation and stimulate the economy. To the extent that the Facility is used to buy gills on the secondary market financed by central bank money, this would be similar to the current implementation of monetary policy, except that the instrument of policy would shift towards the quantity of money provided rather than its price. The Facility also uses central bank money to purchase high quality private sector assets to improve liquidity in credit markets that are currently not functioning normally.
It is still intended that the facility will be temporary. Its closing date is not yet decided and will be announced when the Government is able to make an informed decision on the state of the markets.
I regret that, owing to the urgency of the situation as outlined above, it was not possible to give notification of this indemnity with the customary full fourteen parliamentary sitting days' notice.
HM Treasury
5March 2009
Monday 2 March 2009
Rock Shares
This comment appeared in this Saturday's issue of The Northern Echo (p.17)
"So, Northern Rock is prepared to lend £14bn in the next two years (see Businees Echo, Feb 24). Where's the money for my shares?"
George Maxwell, Reeth, North Yorkshire
"So, Northern Rock is prepared to lend £14bn in the next two years (see Businees Echo, Feb 24). Where's the money for my shares?"
George Maxwell, Reeth, North Yorkshire
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