Northern Rock Still Borrowing From The Bank
The Northern Rock borrowing total from the Bank of England continues to rise, as the Bank’s ‘other assets’ – where the Rock loans appears – went up by £2.2bn in the last week. That is the amount Rock sold its Lifetime Portfolio of mortgages to JP Morgan a fortnight ago, so it ‘other assets’ are all Northern Rock for last week, that sale has been wiped out.
Northern Rock shares have increased in value as hopes of a private buyer have gone up, but MPs are set to launch an attack on the way regulators – in particular the Financial Services Authority (FSA) – have handled the situation. Earlier in the week shares in Northern Rock soared by almost 50% as the City looked well on the Government’s private sector rescue plans.
The Treasury says it will underwrite more than £25bn of bonds issued against Northern Rock’s mortgage books, which makes the ailing bank more appealing than at any time since it went to the Bank of England for emergency funding on 12 September. Within two days the UK had its first run on a British bank in living memory.
The Government brought in Goldman Sachs to come up with a financing plan for the rescue of Northern Rock.
Cerberus from the US is back in the frame after dropping out in December, having been prompted back into consideration by Goldman Sachs’ proposals to convert Northern Rock’s emergency loans into bonds. With loans form the Bank still going up, it is nobody’s interests to delay the sale a moment longer than necessary. The deadline for bids is 4 February.
Sir Richard Branson’s Virgin bid is still considered to be top dog. However, Olivant’s plan is likely to receive more backing from shareholders. A number of funds have said they would support Olivant’s large rights issue.
JC Flowers is another US group re-considering its position, having dropped out some months ago.
The House of Commons Treasury Select Committee is set to publish its first report on the handling of the Northern Rock affair soon, and it is expected to be critical of the FSA for failing to spot the flaws in the bank’s business model.