Whatever happened to Granite?

At the time of the Northern Rock crash, there was much interest expressed by politicians in the funny is-it-on or is-it-off balance sheet shenanigans known as Granite.

The latest statement to be laid before the House of Commons shows that granite does indeed take some wearing away. It says in part:

“The legal entity previously called Northern Rock plc, which has retained the balance (ie poorer quality – Ed) of Northern Rock’s mortgage book (including mortgages allocated to the Granite securitisation and the covered bond programme), the Government loan, its other borrowings, derivatives and certain wholesale deposits held on behalf of its Granite securitisation and covered bond programme, has been re-named Northern Rock (Asset Management)plc."

This company has been given a Treasury guarantee of £18,000 million (£18bn) for which it will "pay an appropriate fee" to ensure it doesn't get a commercial advantage.

To ensure the company will continue to operate above the minimum regulatory capital requirements, NRAM will also have a guarantee of up to £1.6 billion if required.


What seems clear is that the assets of NRAM are nothing like as bad as some would have the former shareholders believe. Granite was alleged to have creamed off lots of good mortgages when it was running full tilt. So the popular description of NRAM as the "bad bank" may just be to keep us thinking that it's worthless. Which it far from is, as the price tag when it's sold will undoubtedly show....

The Rights of Small Shareholders

By Roger Lawson, UKSA and Northern Rock Shareholders Action Group


I happened to be reading the "Rights of Man" by Thomas Paine over Christmas - have been catching up on some of my reading. For those who are not familiar with him, he was very involved in both the American and French revolutions in the late 1700s and was an influential writer on the issues then being debated.



One chapter of the book reports on the "Declaration of the Rights of Man and of Citizens" adopted by the French National Assembly just before the revolution. Clause "XVII" reads: "The right of property being inviolable and sacred, no one might be deprived of it, except in cases of evident public necessity, legally ascertained, and on condition of a previous just indemnity".



We are still looking for a "just indemnity" and it is questionable whether there was any "evident public necessity" for the nationalisation.While countries such as France established the constitutional right for citizens not to have their property confiscated many years ago, because the UK has no constitution the ruling Government party can pass a law that confiscates property without compensation, and it cannot be challenged in practice because UK judges will not overturn Acts of Parliament. Our only way of challenging it is by going to the European Courts - which will clearly take many years and much expense.

An open letter to the Prime Minister and Chancellor

Dear Gordon & Alistair

RE: COMPENSATION FOR NORTHERN ROCK NATIONALISATION

I am going to set out once again the case for giving fair compensation to Northern Rock shareholders following the farcical preliminary report by Andrew Caldwell based on ludicrous and unfair assumptions that you imposed (In administration, Not a Going Concern, No state support) which effectively ruined any chance of arriving at a FAIR & INDEPENDENT VALUATION.

I have to say that HM Government's ethics are pretty close to Karzai and Mugabe in terms of rigging the desired result. Much worse, you have exercised blatant discrimination and failed to move from Denial into Accceptance & RESPONSIBILITY. Only you Dear Gordon will be surprised why 5  million voters will chose to change from Labour to other "ethical" leadership / parties. Let me summarise the reasons for my strong views in the hope that Reason and Justice will prevail IF you abandon your EGOTISTICAL, UNETHICAL and HYPOCRITICAL position to date.

There is substantial evidence to contradict Andrew Caldwell's preliminary conclusions. A Lloyds TSB tentaive offer in excess of £3 per share was not supported by the Tripartite in August / September 2007. The private sector options --pre nationalisation-- offered shareholders an embedded value of between £2 and £4. Finally the "Market Value" of Northern Rock shares were at a very depressed level of 96 pence immediately prior to "Confiscation" of the shares in "the national interest" on 17 February 2008. Clearly any 100% bid for Northern Rock in February 2008 would have seen the shares rocket up to £5/6 for a successful bid. Therefore Andrew Caldwell's preliminary view of zero is farcical!

The Tripartite ineptitude, major errors of assessment and miserable LOLR execution turned a £5 - 8 Billion liquidity problem at NR into a major crisis and banana republic style Run on Northern Rock. A £8 Billion problem became a £25Billion requirement because of Tripartite errors of execution and dithering. This destroyed over £2 Billion of shareholder value and is WHOLLY due to Tripartite mismanagement, government dithering, and useless execution of Lender of Last Resort. The leak to the BBC was unchallened or clarified or reassurance/guarantees being given for FOUR days in the world of modern IT global markets. Quite frankly the Tripartite gave miserable leadership, failed to understand the financial Tsunami which I WARNED the BoE and Treasury about on numerous occasions. Eight months late, the huge Special Liquidity Scheme of several hundred billions was launched in April 2008. The "piecemeal " support for a private sector solution for the Rock post September 2007, with more incentives and concessions grudgingly offered by the Treasury during October 2007 to January 2008 diluted  billions more of shareholder value. The very poor management parashuted into the Rock and farcical oversight from the Tripartite was cricised by the National Audit Office.

Mistakes were compounded post nationalisation. Accelerated impairments, repossessions, deliberately sending the best customers to rival mortgage providers, panic debt collection, continuation of 100% plus loans all added to losses at Northern Rock in the interests of "politically motivated" loan repayment schedules. Then you did a 180 degree change of policy in January 2009, encouraged the Rock to lend more, no urgency in loan repayments! But your management had destroyed £4 Billion of Value! Lost the best customers, increase3d the risk proportion in the Balance Sheet of a UK bank with the lowest level of toxic debts. The SLS was followed by guarantees, Quantitative Easing, interest rate cuts to 0.5%, proactive support for the Alliance & Leicester takeover by Santander. You nationalised Bradford and Bingley and instructed a Valuation on the basis of a Going Concern! You gave £1.6 Billion support for the Dunfermline! You supported £63 Billion of SECRET loans to RBS and HBOS/Lloyds! ALL GOOD INITIATIVES but too late for Northern Rock! Over  £2 Trillion of support, subsidy, guarantees to other UK banks that enabled record profits and bonuses for 2009!

You proactively supported the Lloyds / HBOS merger despite competition hurdles! CANT YOU SEE the blatant DISCRIMINATION you have imposed on 180,000 small shareholders/savers? Cant you admit that there WAS a learning curve for the Tripartite, that policy execution was miserable in 2007, that Northern Rock shareholders at least (market valuation convention would suggest 125% of NET ASSETS equal to £5 per share) deserve the NET ASSET VALUE at 31 December 2007 of £3-80 per share? Do you think, Gordon, that people cant see the hypocricy, ego, denial and total inconsistency in your policy and assessment of the banking crisis? Leading the world is great, please ensure justice at home! Dogma and obduracy destroyed the Bank of England's credibility: do you want to go the same way?

Finally at no stage were Northern Rock shareholders consulted, allowed to vote on the options pre or post nationalisation. Confiscation "in the national interest" is justified IF you pay a FAIR price for  Northern Rock (£5 to £6 per share in my view) as if you had purchased the whole shareholding on the Open Market. The irony of "selling" the good bank which you do not have legal title to (confiscation without compensation is theft) is adding insult to injury.

Try to show decent standards of  ethics, morality, equity. Accept that Tripartite errors of assessment and execution and poor advice from Consultants and Advisors to HM Treasury  wiped out a highly profitable bank. £2 Billion in FAIR compensation is pretty trivial in relation to the Trillions of support for UK banks, billions wasted by the Departments of Health and Defense in ill conceived IT projects and procurement. Dont you want to do the right thing, end the disastrous episode in a British way? Search your conscience, consider the 180,000 poor people of the North East who have lost everything, and the 5 million who will NOT forgive or forget this disgraceful act of discrimination that defies all human rights.

Happy to meet and discuss further with you as always: do you have the guts for a face to face meeting? Should I canvass Joanna Lumley or HM The Queen?

A Happy New Year

Yours sincerely

Pradeep Chand

Good bank, bad bank, big bucks

The chances of the Government making a profit out of stealing our shares seems to be edging closer.

Latest reports suggest that the "bad bank" carved out of Northern Rock could be sold for £2.5 billion, while the remnant "good bank" could fetch as much as £10 billion.

As previously reported, Northern Rock (Asset Management) plc (NRAM) has over £50 billion of mortgages for some 450,000 people, and only 10% are in arrears. Not good, but far from worthless. And as the economy picks up, that figure can only drop. As we've previously said publicly, this could be a gold mine.


Northern Rock plc has £10 billion of mortgages - with virtually no arrears or risk of default - 76 branches and retail deposits. Obviously the money is flooding in - yesterday they withdrew the 3 year stepped cash ISA deal, which is what they typically do when they've taken in a lot of money.

It's not clear how much cash has been injected into Northern Rock, but under £1.5 billion is a reasonable guess. The loans, which had been as high as £27 billion, were down to £14.5 billion last June. New capital of up to £3 billion has ben pledged, but only £1.4 billion has gone into Northern Rock plc to keep the capital ratios right. Of the £1.6 billion potentially available to NRAM, none has yet been handed over.

All of which bears put our contention - give us a proper, fair value or give us our shares back.

RBoS Shareholders Action Group - latest newsletter

APS Voting Shareholders voted overwhelmingly for the Asset Protection Scheme (APS) and "B" share issue although we did issue a recommendation to shareholders to vote against it (this was issued in a press release in this document on our web site (simply click on to access): www.rbosaction.org/RBOS_Press005_APS.pdf . Unfortunately we did not have time to issue it to all of our contacts partly due to illness of the writer of these newsletters, which has also delayed this newsletter somewhat. Not that it would likely have made much difference as institutions seem to have taken the view that there was no possible alternative. RBS and Political Interference   Stephen Hester, the new chief executive of RBS, made some comments at the RBS general meeting which approved the APS which are worth mentioning. He said the bank had been subject to "politicisation" and this had been "very damaging to the business and the taxpayer's interests". He also accused the European Commission of wiping £15bn from the value of RBS by its recent impositions to meet European competition rules, and made negative comments about the dictates made by the Treasury on bonus payments to his staff. Clearly this was a call for a more "hands-off" and enlightened attitude to the bank which is now clearly under total Government control, but this writer does not see much hope of that happening while this Government remains in power. All minority shareholders can hope for is either a change of Government or a rapid sale of the Government stake to the private sector.