UKAR was so profitable that HM Treasury managed to smuggle £125 million out the door without calling it a dividend(dissembling, they called it an increase in the cost of the working capital facility). That’s in just one year. But that’s a fraction of the ongoing profitability in UKAR.
UKAR is generating ongoing profits of £1.8 billion per year. Once you take into account UKAR managed to cut the risk in its lending by £15 billion during the year, from £110 billion down to £95 billion, a lot of this is now excess capital that isn’t needed within the bank. It could be spent elsewhere.
And what’s more, because it’s ongoing, this will be generated every year going forward (UKFI calculated this week that in the over the next 15 years, £32 billion of profit would be paid to the Treasury from UKAR).
If you\’re going to write about finance, banking, accounting, it would help if you actually knew something about finance, banking, accounting.
For of course no one at all is saying that £32 billion of profit is going to be paid to the Treasury. They\’re not even saying that there\’s going to be £32 billion of profit.
What they are saying is that there\’s going to be some income to the Treasury. This is not, as any fule kno, the same as profit.
And what is it that we deduct from income in order to calculate profits kiddies? Yes, that\’s right, we deduct costs from income leaving us with the balance which we call profits. What might we have as costs here? Well, clearly, there\’s all the money the government put in in the first place. That has to be paid back, it\’ll be income as it is paid back, but it certainly won\’t be profit until all of it is paid back.
There\’s another one too. The cost of having put the money in. As we all know, the government pays interest on the money it borrows. Sure, it\’s getting interest and income from UKAR. But none of that is profit until both the original cash plus the interest the government has paid out on the borrowings is paid off.
Now it would be very difficult to calculate all of this out and work out how much money we\’d have to get in income before we started making a profit. Fortunately we don\’t have to because it\’s been done for us. Here.
Over time, the return of cash from these companies to the Government is expected to total between £46
billion and £48 billion. This includes3 the consideration from the sale of Northern Rock plc and the loan
repayments, interest, guarantee fees and equity value at wind-up from Northern Rock (Asset Management)
plc. This means that, in cash terms, the companies are expected to more than repay the original funding
provided by the taxpayer.
However, this cash is expected to be returned over a period of around 10 to 15 years from 2012 as
Northern Rock (Asset Management) plc is run-down and the remaining Government loan is repaid. This
is equivalent to receiving an annual rate of return on the Government’s intervention of 3.5% to 4.5% per
year and compares to the Government’s estimated notional annual funding costs during the period of
intervention of 3.9%.
Now agreed, these concepts, income, profit, costs of funds, interest, they\’re all very complicated. But perhaps, just maybe, before pontificating upon them one might bother to work out what they mean? Especially since the quote I\’ve used above comes from the very source document you yourself, you cretinous, idiot, leftoid, claim to be using as your fucking source document.
Meanwhile, in other news:
Posts by Cormac Hollingsworth
Cormac writes for Left Foot Forward on the economy; he is an economic policy consultant who previously worked as an MD at a European investment bank.
There\’s really no excuse at all for him not knowing this stuff, is there?
And while I abhor political violence:
Cormac Hollingsworth was leafleting an estate on Monday evening when he was
punched three times in the face and kicked. Meanwhile the attacker kept up a stream of insults and shouted pro-BNP slogans.
Afterwards the victim\’s glasses were retrieved nine yards away.
Somebody does need to pound some economics into him, don\’t they? If that\’s too hard, perhaps some finance or even accounting?