Northern Virgin

Excellent piece of argumentation from The Guardian:

A fair amount of nonsense was talked yesterday about the Northern Rock deal, most of it from the two parties involved. George Osborne was touting the sale of the first casualty of the credit crunch as \”value for money\”. The description makes one wonder just how the chancellor approaches his own Christmas shopping. The Newcastle bank had £1.4bn of taxpayer money pumped into it, and its main part is now being sold for £747m, which with time and luck might rise to £1bn. However one holds this deal up, it still represents a loss to the state. Even if everything goes to plan (a big if, given the state of the financial world), taxpayers have just handed over £13 each to the billionaire Virgin boss Richard Branson. They, rather than the chancellor, can judge whether that is a bargain.

Rightie ho, it\’s being sold too cheap. Only £747 million.

What yesterday\’s deal emphatically is, however, is a very curious one. Why was the news sprung now? The chancellor did not explain. How far did the government and its bank-holding agency UK Financial Investments explore alternatives such as turning the Rock back into a mutually owned building society?

The better answer would have been to give it away, not get even the £747 million.

14 comments on “Northern Virgin

  1. Don’t the real economics run something like this:

    Outpayments: £1.4bn

    Inpayments:
    – Dividend on preference shares for c.3 years [£xm]
    -Sales of Good Bank (£747m-£1bn)
    -Proceeds from runoff from Bad Bank for ythe next 20 years [£ym]

    Does anyone know x and y? And why is it too much to for MSM to explain 4 numbers to us before coming up with such guff?

  2. Probably with the Guardian it is best to think of this as being about power, not money. So selling the company to Richard Branson empowers a probable Tory supporter. Well New Labour supporter. Giving it to its share holders gives power to a bunch of, presumable, or at least the Guardian hopes, left voting Northerners. Keeping it in the State’s hands gives power and influence to the sort of people who run and read the Guardian – Upper Middle Class, privately educated Socialists who think the fall of the USSR was the great tragedy of their lives.

    So you can see precisely which solution they are most likely to support.

  3. Surely taxpayers lost their money when Northern Rock was bailed out and no one could say with absolute certainty that they would recover any of it.

    In other words, why complain about getting too little on the sale, rather than paying too much in the first place.

  4. Gary… “it’s complicated”.

    The £1.4bn equity injection in the new bank which happens to be called “Northern Rock plc” is almost irrelevant.

    The £22bn lent to the company called “Northern Rock (Asset Management) plc” (which used to be called “Northern Rock plc”) is the significant “outgoing”.

    As you say, ultimately, profit/loss to the taxpayer is going to be down to the runoff of the NRAM mortgage book, which will take many years. Nobody can know the exactly value of that.

    The loan to what is now NRAM was originally from the BOE, now a liability of HM Treasury, should be earning HM Treasury in the region of £100m-£150m a year; it’s base rate + 25bps.

  5. At least it should mean we hear no more ludicriously ill-informed and contradictory arguments from the Tories about the gold sales.

  6. @Matthew2. Actually it means that we will be spared ludicrously ill-informed and contradictory arguments from Labour apologists defending the indefensible.

  7. dearie – did Broon not announce beforehand that he was planning to sell off a heap of gold? Thus depressing the price in anticipation? Don’t gold traders call that depressed price the Brown Bottom?

  8. Well, perhaps Beardy Branson ought to have been allowed to buy NR, warts and all back in 2007-8 at £1.5bn. Or maybe Lloyds should have been allowed to buy it prior to it seeking last resort financing from the BoE.

    The Graun and Labour are all for “investment” in jobs and the like. Perhaps someone could try to quantify the value of the non-price elements of the deal to sell NR to Virgin. Such as the agreement for no compulsory redundancies for 3 years and the relocation of Virgin Money HQ to Newcastle. Also, the increased employment (etc) from Virgin Money growing the NR branch network. Applying the sorts of multipliers they like it isn’t implausible to imagine that the “value” of these parts of the deal might make up for the £400m or so difference being talked about.

  9. KMcC: yes Brown got what it was worth at the time. If you think that now is as stupid a time to sell a bank as Brown’s bottom was to sell gold, all you have to do is tell us why that is so. Or are you suggesting that one could somehow sell a bank without announcing one’s intention? If so, how?

  10. If you think that now is as stupid a time to sell a bank as Brown’s bottom was to sell gold, all you have to do is tell us why that is so.

    Erm, have you seen the news lately?

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