Friday, September 14, 2007

More on (Moron?) Northern Rock-"Northern Rock Deserves Worse"

By Charles Pretzlik for the FT.

Northern Rock is the only story in town today. Before running through the main angles here, let’s just quickly get a few things straight.

If Northern Rock is not bust it is only because of the Bank of England and the government don’t want it to be. Call it what you like, but this bank ran out of money and can no longer fund all its liabilities, let alone finance its aggressive business model. It is not an innocent victim of events far away, as chief executive Adam Applegarth portrayed it on this morning’s call; it has had to be rescued because its strategy made it more vulnerable to those events than others’. One of our reporters listening to Applegarth on the analysts’ call this morning was struck by how laid-back and quick to blame others he was.

Willem Buiter of the LSE, writing in his blog this morning, is right in my view: the collapse of Northern Rock would not have threatened the financial system and the Bank need not have propped it up. Other guarantees could have been given to protect customers and prevent a run on the bank(s). This looks instead like a political decision intended to spare Gordon Brown and Alistair Darling’s blushes....MORE>

The Result?: London equities headed deeper into negative territory at midday, after Northern Rock issued a severe two-year profit warning and confirmed that it had appealed to the Bank of England for emergency financial support

The FTSE 100 was 1.5 per cent weaker at 6,267.1, a loss of 96.8 points. The biggest portion of that decline was accounted for by high street banks. Mid-cap financial stocks also fell, contributing to a 224.8 point loss on the FTSE 250, down 2 per cent at 10,947.3....