17 comments on “Timmy Elsewhere

  1. No, Human Rights legislation requires no such thing.

    What it does say is that the State cannot deprive people of their property without due process and compensation (with usual get out clauses for national security).

    Ergo the Government cannot just steal the Rock.

    We then get to the sticky point about the value. It can and will be argued (successfully in my opinion) that the recent share price is so polluted by fear of Government that it does not reflect a fair value. In just the same way, if you thought you were about to be mugged, what price could you sell your cash to a like-minded fellow victim?

    After an independent valuation, which won’t be accepted by shareholders, the whole thing will go to court and the upcoming Act to nationalise the Rock will be subject to a challenge under the HRA for failing to provide adequate compensation. Of course, the Government could offer a sweet deal to get agreement quickly, but that would look very bad indeed (especially if it turned out better than the Branson offer just rejected).

    A really thorny issue with no obvious solution. Expect Broonian Motion.

  2. “It can and will be argued (successfully in my opinion) that the recent share price is so polluted by fear of Government that it does not reflect a fair value.”

    This is complete and utter bollocks. Without government’s massive bribes, NR would be worth somewhere around 0p a share – the only thing keeping the share price above that has been the prospect that the government will throw money the shareholders’ way (effectively, the market in NR shares after October 07 was the betting market on whether or not government would give shareholders an undeserved bail-out).

    The worst-case scenario – and it would be an utter outrage, as with the bribe we paid to the Railtrack crooks – is that fair value is determined at the February 2008 suspension price and we have to pay the vultures 80p. The idea that 80p is anything other than around 100x too high is frankly hilarious…

  3. “This is complete and utter bollocks. Without government’s massive bribes, NR would be worth somewhere around 0p a share”

    And you know that for a fact do you? An accountant who has looked at the books have you?

    I explained yesterday basic accounting principles, including the definition of “insolvent”. You had problems grasping these then, so very probably you’ve had no accountancy training, in which case why not shut up while the grownups are talking.

  4. Perhaps you could link to your qualifications in accounting, and/or in being a patronising arse?

    Anyway. Look at the Project Wing IM, available via Google – in October 2007, NR had just over £100bn in mortgage assets, and just under £100bn in liabilities (retail deposits, bank financing and the emergency BoE loan).

    It is crystal clear that there is currently nobody willing to buy NR’s mortgage assets at book price. Whether that’s because they’re overvalued, in which case we’re all shafted, or just because raising £100bn to invest in mortgage debts in the current market is the kind of thing which is met with a laugh and a “stop wasting my time you comedian” despite the fact that it will eventually pay off, is not entirely clear.

    Either way, the only way in which NR’s assets could be sold is at a discount to book price. And even if we assume that discount would only be 5%, that would entirely wipe out shareholder’s equity.

    Hence, the shares are worth nothing.

  5. This is all getting a bit heated, but I tend to agree with John B. In the absence of the hoped-for government bail out, the shares would be worth op to the nearest penny.

    Market cap last November £560 million

    http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/11/20/ccrock120.xml

    I can’t find what the share price was then, but in the interests of shutting up these troublesome shareholders, why doesn’t the government just bung them £50 million or something and tell them to piss off? Ditto employees, call it £8,000 each, that’s another £50 million, problem solved.

  6. NRK would have been around 200p at that point, so market cap at the suspension price of 90p would be around £250m.

    Given that the Virgin deal reportedly came unstuck over a smaller sum than that, it would be a pity if government was forced to pay the £250m – still, it’s pretty trivial compared to the size of the assets and liabilities.

  7. “why doesn’t the government just bung them £50 million or something and tell them to piss off? Ditto employees, call it £8,000 each, that’s another £50 million, problem solved.”

    Outcome #1: shareholders, specifically litigious hedge funds, say “this isn’t enough”, and begin court action. Because it wasn’t placed into administration, there will have to be a long complex and expensive procedure to determine a fair value as if it were placed into administration. Two years later, it may well be the 12p/share that you say, the 0p/share that john b says, the 90p/share at suspension, the 700p/share prior to the shitstorm, the 425p/share book value that the shareholders say, or the 166p/share net run-off value that the Telegraph article you quoted claimed.

    Outcome #2: the shareholders accept an offer (e.g. your 12p/share, or the 90p/share at suspension), the Government comes in for a shit storm from the MSM and the Guardianistas for “giving away taxpayers money” (oh, the crocodile tears for the pissing away of taxpayers money).

    Can you seriously imagine Gordon Brown, AKA Mr. Decisive, actively choosing between these two outcomes? My guess is that he’ll dither while the default #1 plays out, then take #2 (assuming an election doesn’t intervene and put him out of our misery).

  8. Just to add my tuppence-worth. Everyone is right! Northern Rock is worthless in the real world BUT we are no longer in the real world. We are in the twilight zone of government intervention. In this strange world NR has a value – the government has told us so! In this bizarre world where the normal rules of economics are suspended NR could be valued at £4+.

  9. I’ve posted on this here, based on some of the thoughts above.

    Basically, I think Kit’s the closest to right here – the fact that there’s a nominal gain (unless the government writes off 10% of NR’s loans the moment they go on the Treasury’s books, which would be ballsy but unlikely) makes it look like the equity’s worth something, even though it clearly isn’t in any kind of sane world.

  10. Had this piece of junk gone through “normal” liquidation (with the taxpayer standing in for the depositors ONLY), if there’d been a surplus at the end of the process the shareholders would have received it. Frankly no-one knows what NR shares are “worth” – I lean towards john b’s valuation – but, as Kit implies, we’re in a twilight world of saving Labour seats at taxpayers’ expense. Accordingly every “stakeholder” (ie anyone in the North East with a vote) must be in with a shout for some compensation.

  11. “Had this piece of junk gone through “normal” liquidation (with the taxpayer standing in for the depositors ONLY), if there’d been a surplus at the end of the process the shareholders would have received it.”

    The Government should have done exactly that. Then there would be no arguments, neither in court nor in the media/blogosphere.

    To quote Gordon Gecko, “Greed clarifies, cuts through, and captures the essence of the evolutionary spirit.” A liquidation would have clarified and cut through all the fog.

  12. Presumably Northern Rock has not lost every single penny deposited by their customers. Somewhere between zero and their book value is the real value of Northern Rock. Another, and I expect better, alternative would have been for the Government to offer to lend a new management team as much money as they needed on the condition that it was an Option for Shares at some future date. Every pound the Government gave would be a pound worth of shares at the time the Government asked for their money back. Once the Bank was back on its feet the Government could then sell them on the open market slowly over time. This would have two good effects. One is that it would cost me nothing. Second, it would also make the bank’s new managers think very carefully before asking for any more cash as they would have to pay it back and dilute the value of their existing stockholders. It might be expected to be more efficiently used money over all.

  13. Presumably Northern Rock has not lost every single penny deposited by their customers. Somewhere between zero and their book value is the real value of Northern Rock.

    No, because NR doesn’t own the money deposited by its customers – that’s owned by, err, its customers.

    The value of Northen Rock is the value of its assets (mortgages) minus the value of its liabilities (deposits, bonds, BoE loans). The difference between the two is small – even at its most successful, £5bn-ish on assets and liabilities of £100bn-ish – so it’s surprisingly easy to wipe it out while only losing a small proportion of its assets.

  14. To the folks here wittering on about share prices:
    There is no relationship between a share’s price & the value of a company. None whatsoever. Anyone who has watched mugs paying £175 a share for a company with a hole in a desert in Australia or their children similar sums for a name with dot com after it would be aware of that. The back inside pages of the Pinkun are an historical document.
    A share price is that instant of the space/time continuum where a willing seller & a willing buyer agree to exchange money for stock.

    If john b would like to stick by his appraisal of the Crock I will make him an offer. I will buy for a crisp £20 note 100 shares in NR that he doesn’t own. The only proviso is that in a year’s time he gives me those 100 shares or their value at that day’s market rates. If john b would like to post his address I will tuck the note in an envelope & subject to the vagaries of Royal Mail he can be toasting his success as an option trader in the student union bar by the weekend. We also will have set a share price for NR. 20p*
    (*Strictly speaking this is an unofficial price but as unofficial markets have operated in various stocks over the years there’s plenty of precedent)

    I am of course betting that NR shareholders will receive a payout in excess of 20p per share and doing so with absolutely no interest in the underlying value of the company. It’s not relevant. It’s purely a speculation on the politics.

    Close of trade is at 3.30pm UK ( Well I am a traditionalist)

  15. Sorry, no – while I do believe the value of NR’s net assets per share is less than 20p, as you note that isn’t directly related to share prices. I reckon there’s more than a 20% chance of the government caving and giving them a settlement somewhere around suspension price, even though I don’t think it should…

    Tim adds: Which was sort of something I wanted to find out. What actually is the grey market price of Crock shares. Anyone know? At pennies they’d be an excellent bet on precisely that political calculation. At 2p I’d certainly throw a £k at it.

  16. “there’s more than a 20% chance of the government caving and giving them a settlement somewhere around suspension price”

    Which would tend to substantiate the surmise that the government (or at least its civil servants) don’t understand much about share prices either.

    The price at suspension, (and I’d like to see the price at which the stock last traded which is a different thing from what dealers last had it marked up ) already discounts the possibility that the company might go bust. Ergo the buyer who bought that last trade should have known that. Tough. That’s the flip side of Limited Liability.

    “What actually is the grey market price of Crock shares. Anyone know? At pennies they’d be an excellent bet on precisely that political calculation. At 2p I’d certainly throw a £k at it.”

    Copy of the shareholders register, & a lot of stamps. Make em an offer. I spent endless tedious hours in the ’70’s doing this with suspended tin & rubber shares. You might end up owning a substantial proportion of NR.

  17. John B, obviously NR does not own the money deposited in it. Even if it did, it cannot really lose that money. What it does own are the loans – as you p0int out. It can lose that money and so be unable to pay back the depositors. As I said, it is unlikely that NR was so incompetent that all their loans are worthless. Their book must have some value. Whatever that is. As long as the depositors are secure and confident they will not demand their money back right away either. Meaning that an injection of new cash could keep NR afloat. The size of that is the problem. Hence my idea that the best way to keep it to a minimum – and punish those that are really to blame – is to dilute the stock of the company rather than rely on a government hand out.

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