Are Left Foot Forward really this damn stupid? Thick as pig shit?

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.

Jus\’ sayin\’ like.

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?

7 comments on “Are Left Foot Forward really this damn stupid? Thick as pig shit?

  1. It depends on whether you look at UKAR or the Treasury (or the two consolidated).

    Certainly overall, and for the Treasury, there’s no income or profit being generated here; it’s just a repayment of the original investment.

    OK, perhaps there’s a bit of a return, which is income, but still not profit unless it’s greater than the interest the government has to pay to finance that original investment.

    Once that’s paid off the Treasury might get some profit, if there’s anything left, but that seems unlikely.

    However UKAR might (on a stand-alone basis) be making a profit. Not sure if it is, because it would depend on what the original deal was and what it paid for the loan book.

    – If UKAR got the loan book at zero cost, then anything it gets in is pure profit.

    – If UKAR got the loan book at less than the nominal cost of the loans, then again it’s possible for UKAR to be making a profit on those loans, if it collects in more than they were written down to.

    But that’s still only ‘profit’ on a very narrow accounting definition, looking at UKAR on a stand-alone basis.

    On any sensible view, looking at UKAR and the Treasury on a consolidated basis, this is just recouping the initial investment and covering the financing costs; there’s no income or profit yet, and isn’t likely to be any.

  2. Next week they ‘ll be castigating the Tory government for sinking billions into bailing out the bank.

    Doublethink all round!

  3. Ah, but remember – according to our favourite retired accountant, if you consolidate the BoE and Treasury accounts, much of the UK’s debt is eliminated. So there is no need to recover the government’s investment in UKAR, since QE has effectively written it off. Therefore this is pure profit that could be spent on lovely pet projects.
    Or something.

  4. Pingback: Adam Smith fellow gloats over assault of rival by BNP thugs | Political Scrapbook

  5. ‘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?’

    It does sound like you find violence understandable, though of course you ‘abhor it’.

    Would you find violence so understandable if it came from someone who didn’t share your views?

    Tim adds: “Would you find violence so understandable if it came from someone who didn’t share your views?”

    That’s making the assumption that I share views with the BNP. Something of an unfounded assumption: I cannot actually think of any views at all that I share with the national socialists in the BNP. We might agree that kittens are cute but beyond that, nothing really.

  6. er “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.”

    This just relates to the sale of northern rock, and doesn’t take into account any of the other banks we have stakes in shurely?

    Also, you talked about profit and loss and all we got at the end were a couple of percentages from the northern rock peice. You have completely failed to answer your own question. Please show all working fully (remember that!?), and give us the figure, so we can see if we are in profit or loss.

    thanks.

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