Friday, November 8, 2019

FT Alphaville's Markets Live: The Fall Of Northern Rock

The morning of Thursday, September 13, 2007 seemed normal enough in da 'ville, but with Helen Thomas (HT) filling in for Paul Murphy, opposite Neil Hume (NH):

HT Good morning - and welcome to Markets Live
HT Different line-up this morning
HT Paul's been called away

NH important meeting
NH apparently
HT we're in the dark

HT but will attempt hold the fort
HT how are you this morning neil?
NH tired for some reason

NH but obviously raring to go
HT of course
HT what's happening out there? VPnwks already on about the banks

NH Well the FTSE 100 is only down 9.8 points at 6,296.4 but it feels a lot worse
NH some nasty falls in the banking and property sectors
HT indeed

HT who's suffering?
NH Alliance & Leicester are down 39.5p at 925p – that’s a fall of 4.1%
NH our favourite banking stock Northern Crock is off 19.5p at 652p – that’s a fall of 3.7%

HT what's going on - worries about libor?
NH well, that’s playing a part
NH but I think its more concerns about the outlook for the mortgage market

HT because some of the big lenders are putting up rates in order to offset the higher wholesale funding costs
NH yep. did you see the regulatory announcements from Northern Crock yesterda, issuing 3 month notes with a coupon of 7%
NH Anyway Abbey and Bank of Scotland raised rates on their tracker mortgages yesterday and HBOS is expected to follow suit

NH Now if HBOS, which trades under Halifax, does it everyone else will follow
NH and the fear is that this could all get very nasty
NH and the banks will end up writing off a lot of bad loans....
Later that day all hell broke loose. From a 2010 retrospective:
...Although the BBC's Robert Peston got the scoop, FT Alphaville bulldogged the story.
From the BBC:
21:03 GMT (22:03 UK)
Northern Rock gets bank bail out
I just happened to be in the office the evening of the 13th and apparently one of the FT Alphaville staffers happened to be  at their office at 23:22 British Summer Time!
Here's the post, the first of many:
As a follow-up to the post immediately below.
Talk about a dynamic situation. Whatever happened to 3-6-3 banking?

From FT Alphaville:
All Chauffeur Alert! Bank of England Court convenes
It’s not the sort of invitation you’d turn down: 9.30 pm, Threadneedle Street, don’t be late. FT Alphaville understands that the governor, Mervyn King, his two deputies and the 16 non-executive members of the Bank of England’s Court of Directors convened on Thursday evening.
Needless to say, this will have been quite a confab, attendees ranging from Arun Sarin of Vodafone to Sir Callum McCarthy of the FSA, along with the in-house Bank team and the rest of the gang.
Top of the agenda, of course, was Northern Rock - known by another name to regular readers of Markets Live. News that the mortgage bank has had to seek emergency funding from its lender of last resort was broken by the BBC’s Robert Peston earlier in the evening.
But an All Chauffeur Alert? At 9.30? On a Thursday evening? Surely this must point to something more toxic - or at least something big and bad that we have yet to learn about. Rock is not a shock. The mortgage bank has been looking dangerously brittle for weeks, and when a share price falls by 3/4/5 per cent each and every day, people do tend to talk…
We are assured, however, that Rock is as far as it goes. For now.
The convening of the Council was a technical matter, required to sanction the launch of what is effectively a lifeboat.
Whether the threat of a run on Rock, and perhaps other overly ambitious mortgage lenders with synthetic balance sheets, will be treated as something technical remains to be seen.
So if you see one of these
Put it on.
Buy it.
The price of tin hats is going up...
On Friday the 14th it was a run on the bank:
Northern Rock: Customers line up to withdraw funds
And Mr. Murphy (who it later turned out was the hitherto anonymous scribe who wrote the 20-minutes-to-midnight post) was back at HQ:
PM Welcome to Markets Live – FT Alphaville’s market commentary
PM Neil Hume is with me.
PM We are just about as busy as you can imagine.
PM Busy preparing The Crock Rreport
PM Cue stirring music.
NH get with its not Northern Crock. It's much worse this is NORTHERN WRECK
PM First the news – for those living in a tin box, with the lid shut.
NH Bank of England has moved to bail out Northern Rock
PM We knew Rock was stressed, but Robert Peston of the BBC got news that Rock had finally and formally gone to the Bank yesterday and said “We’re screwed. The market won’t finance us. Will you? Please?
NH Yep – it seems the Bank and the FSA have been planning this rescue for a full week – according to usually knowledgeable sources
PM Once they realised it was becoming public they had to call in the Bank’s Council of Directors – that happened last night at 9.30.
PM Grandees streaming into Threadneedle St.
NH I believe our Bruno Vincent – snapper – was the only man on the spot last night.
PM Yes, it was an All Chauffeur Alert.
PM So this morning the price of Northern Wreck crashed as low as 475. currently trading at 500 in the middle – down 22%
PM Basically the City has torn up its earnings estimates. Just try to work out net value – to a potential bidder, that is.
NH We’ve got waves of rumours washing across the market – over the past half hour or so these have centred on a rescue takeover.
NH but there is also a strong and growing opinion that Rock should have been allowed to fail.
PM Yes, Willem Buiter – serious pundit, ex MPC – has declared

Following the bail out of Northern Rock, I can only conclude that the Bank of England is a paper tiger. It talks the ‘no bail out’ talk, but it does not walk the talk. It does not matter whether the decision to bail out Northern Rock was initiated and/or actively supported by the Bank, or whether the Bank was bullied into it by the Treasury and the FSA…

We will all pay the price in the years to come, when the next wave of reckless lending washes over us. Let’s hope that the collateral requirements and penalty rate charged on the credit line will be tough enough to limit the damage.
PM Here’s his blog address
PM Now ..... this bail out .... i cant keep up with the comments below
NH but we too are hearing reports of queues of 200 people outside NRK branches across the country....
And I apparently lost my mind and started channeling New York Post headline style:
Rock, Paper, Scissored 
I don't think I ever recovered. 
More to come.