Robin Ashby has been asked by the media for recation to the news in today's Times newspaper that Adam Applegarth, the Chief Executive of Northern Rock at the time of the crash, and architect of the bank's failed strategy, is to become a senior adviser to American private equity firm Apollo Management. It is suggested that he will not have to be approved by the Financial Services Authority as a fit and proper person, and that he will be advising on the acquisition of the dodgy, or "impaired", loans.
Robin commented:
"This is extraordinary. Mr Applegarth's judgement, and therefore Apollo's in taking him on, must be very much in question after the events of 2007.
"The mechanism for him doing the job can be seen as trying to get round FSA rules, which, if the case, is reprehensible.
"What are these people trying to achieve? The Government, Northern Rock, and their circus of highly paid advisers must have gone to the outermost edges of these dodgy deals, and must make that information available as part of any due diligence. If Applegarth has any insider knowledge that would help a buyer, I would have expected him to make that known to Northern Rock's team in return for his mega payoff.
"Some humility, and an apology to all those like our members who he has helped impoverish, wouldn't go amiss before he takes any new job."
Thursday, 1 October 2009
Tuesday, 4 August 2009
Northern Rock : Half year loss of £724.2m
As reported by the BBC
Northern Rock has reported a loss of £724.2m for the first six months of 2009, compared with a loss of £585.4m in the first half of last year.
The nationalised bank said that 3.92% of its mortgage loans were more than three months in arrears, well above the national average of 2.39%.
It currently owes the government £10.9bn, but is waiting for European regulatory clearance for more funding.
Northern Rock was nationalised in February 2008.
It had to be bailed out by taxpayers in 2007, when its model of borrowing short-term funds from wholesale markets to lend to mortgage borrowers was hit by the credit crunch.
BBC business editor Robert Peston said that there were tentative signs that Northern Rock may be over the worst.
But he added that its mortgages are continuing to go bad at an alarming rate and a faster rate than most of its rivals.
The bank said the total value of all of its loans had fallen by £602.2m in the first six months of the year.
Additional funding
Northern Rock is in the process of splitting itself into two companies, one of which will hold savers' money and be responsible for new lending, while the other will hold many of the existing loans and be responsible for paying back loans to the government.
Have Your Say
J Shaw, Bradford
Once the restructuring has been completed, the Treasury will provide additional funding if the European Commission agrees to allow the plan.
Chief executive Gary Hoffman told reporters he was making "good progress" in discussions with the Commission and expected to receive clearance in the autumn.
Earlier in the year, Northern Rock announced a change to its strategy, which has meant that it has reduced the priority of repaying its loans to the government and instead has tried to increase the amount of money it is lending.
But it has warned it is unlikely to meet its target of £5bn of new lending for this year and is more likely to hit a figure of £4bn.
Mortgage demand
Mr Hoffman said that the target would be missed, because it was constrained by not yet having received state aid clearance from Europe.
But he added that there would have been demand for the extra money if it had been available and said applications for Northern Rock mortgages had doubled in the second quarter of the year, compared with the first three months of the year.
In addition to reporting statutory losses, Northern Rock also released an underlying figure, which it said gave a better reflection of the state of the business.
The underlying loss fell to £269.6m for the six months to 30 June, compared with £443.3m for the same period of 2008.
The underlying figure excludes a £156.4m rebate that it will receive if it gets state aid clearance from the European Commission.
It also excludes what it calls a volatility charge of £298.2m on the way it accounts for the value of certain assets.
Northern Rock has reported a loss of £724.2m for the first six months of 2009, compared with a loss of £585.4m in the first half of last year.
The nationalised bank said that 3.92% of its mortgage loans were more than three months in arrears, well above the national average of 2.39%.
It currently owes the government £10.9bn, but is waiting for European regulatory clearance for more funding.
Northern Rock was nationalised in February 2008.
It had to be bailed out by taxpayers in 2007, when its model of borrowing short-term funds from wholesale markets to lend to mortgage borrowers was hit by the credit crunch.
BBC business editor Robert Peston said that there were tentative signs that Northern Rock may be over the worst.
But he added that its mortgages are continuing to go bad at an alarming rate and a faster rate than most of its rivals.
The bank said the total value of all of its loans had fallen by £602.2m in the first six months of the year.
Additional funding
Northern Rock is in the process of splitting itself into two companies, one of which will hold savers' money and be responsible for new lending, while the other will hold many of the existing loans and be responsible for paying back loans to the government.
Have Your Say
J Shaw, Bradford
Once the restructuring has been completed, the Treasury will provide additional funding if the European Commission agrees to allow the plan.
Chief executive Gary Hoffman told reporters he was making "good progress" in discussions with the Commission and expected to receive clearance in the autumn.
Earlier in the year, Northern Rock announced a change to its strategy, which has meant that it has reduced the priority of repaying its loans to the government and instead has tried to increase the amount of money it is lending.
But it has warned it is unlikely to meet its target of £5bn of new lending for this year and is more likely to hit a figure of £4bn.
Mortgage demand
Mr Hoffman said that the target would be missed, because it was constrained by not yet having received state aid clearance from Europe.
But he added that there would have been demand for the extra money if it had been available and said applications for Northern Rock mortgages had doubled in the second quarter of the year, compared with the first three months of the year.
In addition to reporting statutory losses, Northern Rock also released an underlying figure, which it said gave a better reflection of the state of the business.
The underlying loss fell to £269.6m for the six months to 30 June, compared with £443.3m for the same period of 2008.
The underlying figure excludes a £156.4m rebate that it will receive if it gets state aid clearance from the European Commission.
It also excludes what it calls a volatility charge of £298.2m on the way it accounts for the value of certain assets.
Wednesday, 29 July 2009
Give us back our shares!
Yesterday Robin Ashby spoke to BBC Radio Scotland about the outcome of the shareholders' appeal to the Court of Appeal. He stressed that the Northern Rock Small Shareholders Group is not a party to the court proceedings, although in sympathy with the claims of other shareholders and of course very interested in the outcome.
In his view, this was by no means the end of the line. He would expect the case to go next to the new Supreme Court (which is the Judicial Committee of the House of Lords until 31 July) and if the shareholders lose there, perhaps even to the European Court of Human Rights.
(The parties to the case are the two biggest shareholders, RAB and SRM Global, and a few selected small shareholders working with the UK Shareholders Association.)
Once the legal challenge is resolved, the valuer can get on with his wrok. But it is part of the contention that the rules have been so rigged by the Government that they are wqasting money to employ him and might just as well be honest and say “we've taken your shares and we're going to give you nowt”
The view that he expressed was that the small shareholders for whom NRSSG speaks don't want derisory compensation, they want fairness. The big banks weren't nationalised. The Government stood behind them while they tried to launch rights issues which the Government underwrote. So it ended up with a dominant shareholding. In the case of Northern Rock, it could easily have done the same thing. Indeed, it has injected £3 billion as shares.
We might have been diluted to a very large extent, but we'd still have been shareholders in our company and could share in any upside – which obviously the Government expects, because it's planning to sell Northern Rock back to the private sector as soon as it can.
Clearly all this will be going on until the General Election next year, when I expect former shareholders will be reminded about the theft of their shares, and will hold politicians seeking their vote to account.
There's an easy way for them to get out of this situation – give us back our shares!
Tuesday, 28 July 2009
Court of Appeal defeat but fight goes on
Appeal defeat for Rock investors
Former Northern Rock shareholders have lost their appeal in the latest stage of their challenge to the government's compensation plan.
The shareholders had appealed against a High Court decision to refuse a judicial review of the fairness of the government's scheme to compensate them.
They argued the government had deliberately undervalued the bank in the run up to its nationalisation.
But they said that they would now try to take the case to the House of Lords.
"We embarked upon this legal challenge in the full expectation that it would be a lengthy process. We are determined to see it through to its conclusion," said Jon Wood, of SRM - which was involved in bringing the appeal.
Crunch
Northern Rock came close to collapse at the start of the credit crisis in 2007 after savers staged a run on the bank after it had sought financial aid from the government.
Subsequently it had to be bailed out by the government, which then went on to nationalise the bank in February 2008.
At the time of nationalisation the government said that any subsequent valuation for compensation purposes should be based on the assumption that Northern Rock had not been a going concern.
The appeal was brought by hedge funds and other Northern Rock shareholders.
They argued in the original High Court case that the government's assessment of the bank's true worth was false and almost guaranteed that they would end up with nothing.
Government barristers pointed out that the lender had been lent or guaranteed £54bn of taxpayers money to keep the bank going, and that without this support the bank would have gone bust, leaving the shares totally worthless.
The High Court judges ruled that shareholders had taken a commercial risk with their investment.
Story from BBC NEWS:
http://news.bbc.co.uk/go/pr/fr/-/1/hi/business/8172169.stm
Published: 2009/07/28 09:41:54 GMT
© BBC MMIX
Former Northern Rock shareholders have lost their appeal in the latest stage of their challenge to the government's compensation plan.
The shareholders had appealed against a High Court decision to refuse a judicial review of the fairness of the government's scheme to compensate them.
They argued the government had deliberately undervalued the bank in the run up to its nationalisation.
But they said that they would now try to take the case to the House of Lords.
"We embarked upon this legal challenge in the full expectation that it would be a lengthy process. We are determined to see it through to its conclusion," said Jon Wood, of SRM - which was involved in bringing the appeal.
Crunch
Northern Rock came close to collapse at the start of the credit crisis in 2007 after savers staged a run on the bank after it had sought financial aid from the government.
Subsequently it had to be bailed out by the government, which then went on to nationalise the bank in February 2008.
At the time of nationalisation the government said that any subsequent valuation for compensation purposes should be based on the assumption that Northern Rock had not been a going concern.
The appeal was brought by hedge funds and other Northern Rock shareholders.
They argued in the original High Court case that the government's assessment of the bank's true worth was false and almost guaranteed that they would end up with nothing.
Government barristers pointed out that the lender had been lent or guaranteed £54bn of taxpayers money to keep the bank going, and that without this support the bank would have gone bust, leaving the shares totally worthless.
The High Court judges ruled that shareholders had taken a commercial risk with their investment.
Story from BBC NEWS:
http://news.bbc.co.uk/go/pr/fr/-/1/hi/business/8172169.stm
Published: 2009/07/28 09:41:54 GMT
© BBC MMIX
Friday, 26 June 2009
Public Accounts Committee Report - 25th June
The Public Accounts Committee publishes a report examining the
protection of the taxpayer ahead of nationalisation, the Treasury's
capacity and readiness and the oversight of Northern Rock after
nationalisation.
* Report: The Nationalisation of Northern Rock
Edward Leigh MP, Chairman of the Committee of Public Accounts, today said:
"The Treasury's lack of preparedness for dealing with the failure of a
major bank was evident as early as 2004 but nothing much was done to
remedy this weakness. It is not surprising therefore that, in September
2007, when there was the run on deposits at Northern Rock, the Treasury
was caught flat-footed.
"The taxpayer was therefore exposed to enormous risks and liabilities to
an unknown degree. Even though the Treasury was pouring in billions to
stabilize the bank, Northern Rock was allowed to carry on awarding high
risk loans to the tune of £750 million. And, when the Treasury
nationalised the bank in February 2008, it did not carry out its own due
diligence on the quality of the Rock's loan book; nor did it sufficiently
challenge the company's unrealistic forecast that house prices would
remain much the same up to 2012.
"That said, the Treasury's ultimate decision to nationalise Northern Rock
in February 2008 was based on a comprehensive assessment of the options
available to it. This analysis suggested that public ownership
represented the best alternative in terms of value for money.
"The Treasury must never again be so ill-prepared. As this crisis has
shown, the Treasury's ability to respond effectively to future financial
crises must be maintained at the highest level. This involves making
sure that, in future scenario testing, action is swiftly taken to deal
with any shortcomings that emerge."
Mr Leigh was speaking as the Committee published its 31st report of this
Session which, on the basis of evidence from the Treasury, examined the
protection of the taxpayer ahead of nationalisation, the Treasury's
capacity and readiness and the oversight of Northern Rock after
nationalisation.
The run on deposits at Northern Rock in September 2007 and the company's
subsequent search for a solution, culminating in public ownership in
February 2008, was the first major test in recent times of the Treasury's
capacity to deal with a bank in difficulty. By 2007 Northern Rock had
grown to become the fifth largest mortgage lender in the UK. To finance
its growth the company depended on raising funds from wholesale sources
such as other banks, and selling its existing mortgage book to investors.
In August 2007, credit concerns stemming from bad debts in the US mortgage
market caused banks to curb their lending to each other and investors to
stop buying mortgage-backed securities. Northern Rock began to experience
problems raising funds and asked the Bank of England for emergency
financial support.
When Northern Rock's customers became aware of the support, queues formed
outside branches and, over a few days, £4.6 billion was withdrawn. The
Treasury stabilised the situation by providing a series of guarantees to
retail depositors and wholesale lenders. This action avoided the immediate
risk of problems spreading to other banks. At its peak, the taxpayer
underwrote up to £51 billion of the company's liabilities. Throughout the
period of emergency support the company agreed, amongst other measures, to
reduce mortgage lending, but continued to write loans of up to 125 per
cent of a property's value.
With the assistance in place, the Treasury's preferred option was to
support the company while it searched for a private sector buyer. The
Treasury considered it should avoid taking any actions that were properly
a matter for the Northern Rock directors and, therefore, regarded the
company as being in charge of the search for a buyer, even though
increasingly large sums of public money were at risk. It gradually became
clear that potential buyers for the company could not arrange private
funding and, with market conditions continuing to deteriorate, there was
no prospect of a sale on this basis. The Treasury decided that
nationalising the company offered the best means of protecting the
taxpayer.
The Treasury was stretched to deal with a crisis of this nature. The
Treasury, the Bank of England and Financial Services Authority (the
Tripartite Authorities) had undertaken an exercise in 2004 to test their
response if a bank got into difficulty and had identified gaps in the
statutory framework to protect depositors. Prior to 2007, the Treasury did
not judge the work to address these gaps to be a priority.
Very few people within the Treasury had the relevant skills to deal with
the crisis at Northern Rock and it made extensive use of external
advisers. Although Goldman Sachs commenced work as the Treasury's
financial adviser in September 2007, a fee structure was not agreed until
January 2008. The agreement included a monthly retainer plus a success
fee, but success was not defined.
Once the company was in public ownership, the Treasury approved a business
plan for it in March 2008. This plan was based on optimistic assumptions
about the outlook for house prices. The base case had assumed, for
example, a 5 per cent drop in house prices in 2008 and flat thereafter.
The company had to substantially revise its forecasts in August 2008.
protection of the taxpayer ahead of nationalisation, the Treasury's
capacity and readiness and the oversight of Northern Rock after
nationalisation.
* Report: The Nationalisation of Northern Rock
Edward Leigh MP, Chairman of the Committee of Public Accounts, today said:
"The Treasury's lack of preparedness for dealing with the failure of a
major bank was evident as early as 2004 but nothing much was done to
remedy this weakness. It is not surprising therefore that, in September
2007, when there was the run on deposits at Northern Rock, the Treasury
was caught flat-footed.
"The taxpayer was therefore exposed to enormous risks and liabilities to
an unknown degree. Even though the Treasury was pouring in billions to
stabilize the bank, Northern Rock was allowed to carry on awarding high
risk loans to the tune of £750 million. And, when the Treasury
nationalised the bank in February 2008, it did not carry out its own due
diligence on the quality of the Rock's loan book; nor did it sufficiently
challenge the company's unrealistic forecast that house prices would
remain much the same up to 2012.
"That said, the Treasury's ultimate decision to nationalise Northern Rock
in February 2008 was based on a comprehensive assessment of the options
available to it. This analysis suggested that public ownership
represented the best alternative in terms of value for money.
"The Treasury must never again be so ill-prepared. As this crisis has
shown, the Treasury's ability to respond effectively to future financial
crises must be maintained at the highest level. This involves making
sure that, in future scenario testing, action is swiftly taken to deal
with any shortcomings that emerge."
Mr Leigh was speaking as the Committee published its 31st report of this
Session which, on the basis of evidence from the Treasury, examined the
protection of the taxpayer ahead of nationalisation, the Treasury's
capacity and readiness and the oversight of Northern Rock after
nationalisation.
The run on deposits at Northern Rock in September 2007 and the company's
subsequent search for a solution, culminating in public ownership in
February 2008, was the first major test in recent times of the Treasury's
capacity to deal with a bank in difficulty. By 2007 Northern Rock had
grown to become the fifth largest mortgage lender in the UK. To finance
its growth the company depended on raising funds from wholesale sources
such as other banks, and selling its existing mortgage book to investors.
In August 2007, credit concerns stemming from bad debts in the US mortgage
market caused banks to curb their lending to each other and investors to
stop buying mortgage-backed securities. Northern Rock began to experience
problems raising funds and asked the Bank of England for emergency
financial support.
When Northern Rock's customers became aware of the support, queues formed
outside branches and, over a few days, £4.6 billion was withdrawn. The
Treasury stabilised the situation by providing a series of guarantees to
retail depositors and wholesale lenders. This action avoided the immediate
risk of problems spreading to other banks. At its peak, the taxpayer
underwrote up to £51 billion of the company's liabilities. Throughout the
period of emergency support the company agreed, amongst other measures, to
reduce mortgage lending, but continued to write loans of up to 125 per
cent of a property's value.
With the assistance in place, the Treasury's preferred option was to
support the company while it searched for a private sector buyer. The
Treasury considered it should avoid taking any actions that were properly
a matter for the Northern Rock directors and, therefore, regarded the
company as being in charge of the search for a buyer, even though
increasingly large sums of public money were at risk. It gradually became
clear that potential buyers for the company could not arrange private
funding and, with market conditions continuing to deteriorate, there was
no prospect of a sale on this basis. The Treasury decided that
nationalising the company offered the best means of protecting the
taxpayer.
The Treasury was stretched to deal with a crisis of this nature. The
Treasury, the Bank of England and Financial Services Authority (the
Tripartite Authorities) had undertaken an exercise in 2004 to test their
response if a bank got into difficulty and had identified gaps in the
statutory framework to protect depositors. Prior to 2007, the Treasury did
not judge the work to address these gaps to be a priority.
Very few people within the Treasury had the relevant skills to deal with
the crisis at Northern Rock and it made extensive use of external
advisers. Although Goldman Sachs commenced work as the Treasury's
financial adviser in September 2007, a fee structure was not agreed until
January 2008. The agreement included a monthly retainer plus a success
fee, but success was not defined.
Once the company was in public ownership, the Treasury approved a business
plan for it in March 2008. This plan was based on optimistic assumptions
about the outlook for house prices. The base case had assumed, for
example, a 5 per cent drop in house prices in 2008 and flat thereafter.
The company had to substantially revise its forecasts in August 2008.
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