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.
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It is worth also bearing in mind that as well as the sale value yet to be realised, Government & Co have also enjoyed charging the Rock a penal rate of interest which has been worth at least £1.7bn to £2bn since the debacle.
The £50bn of mortgage assets with 10% in arrears would suggest that even in the 'bad bank' there are some £45bn of mortgages which are 'good', which, in an OK securitisation market in a recovering housing market could be worth some £30bn to £35bn alone - that's seriously good cashflow for 'bad bank'!!
Chris Hulme CertPFS CeMAP
Director
The Clayton Hulme Partnership
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