Lloyds' Northern Rock rescue foiled by regulators

Discussion in 'Wall St. News' started by ASusilovic, Sep 17, 2007.

  1. Lloyds TSB as poised to take over Northern Rock PLC (NRK.LN) before the troubled U.K. mortgage lender was forced to go to the Bank of England for an emergency credit line, but the deal was ultimately blocked by the BoE and the U.K. Financial Services Authority, the Sunday Times reported, without citing sources.
    It said there were concerns among BoE officials that a takeover would cause greater consternation in the financial markets, leaving Northern Rock with no choice but to ask the BoE for an injection of funds.
    Spokeswomen for Lloyds TSB and the FSA declined to comment on the report. A BoE spokeswoman said the Bank of England doesn't have any jurisdiction to block bids, and a Northern Rock spokesman couldn't immediately be reached.


    Thank you Mr. King ! :mad:
  2. King Faces `Crisis of Confidence' on Bank of England Credit-Tumult Stance

    Bank of England Governor Mervyn King has spent the past month trying to stay above the fray as the U.S. subprime-mortgage collapse roiled credit markets. Now he's getting dragged in, whether he likes it or not.

    Two days after King, 59, told lawmakers on Sept. 12 that central banks should avoid giving the impression they will help lenders that made bad decisions, the Bank of England provided emergency funds to Northern Rock Plc in the biggest bailout of a British bank in three decades.

    ``It's a crisis of confidence, and the bank is confused,'' said Patrick Minford, an economics professor at Cardiff University who advised former Prime Minister Margaret Thatcher. ``They want to be hands-off, but in this situation they can't be. I don't think this has done King any good.''

  3. http://ftalphaville.ft.com/

    When no buyer could be found, Northern Rock had no option but to go to the Bank of England and seek emergency funds, which it did at the beginning of last week. But as the BBC’s Robert Peston points out on his blog, the Bank’s terms included a harsh clause: it would extend a lifeline to an independent Northern Rock, but it could not be used in anyway to shield investors (rather than depositors) from losses.

    As Peston states:

    What follows from that? Well, the Bank of England would remove the emergency lending facility more-or-less the moment it was taken over by a bigger bank.

    If it didn’t do that, the Bank of England could be accused of subsidising the sale of Northern Rock and propping up the value of Northern Rock’s shares and bonds, which is the last thing it wants to do.

    But, as Northern Rock found out when looking for a buyer this summer, no bank has the confidence to buy Northern Rock and attempt to refinance its balance sheet on the money markets in the normal way.

    Two banks, one being Lloyds TSB, are said to have been ready to take Northern Rock over, but only on the condition that the Bank would keep its financing guarantee in place — which it said it wouldn’t.

    Those discussions are assumed to have taken place on Thursday, explaining the acceleration of the crisis that day, which culminated in the Bank’s Council of Directors being called to an emergency session at 9.30 that evening.

    Friday was a wipe-out as far as the authorities were concerned. But the weekend provided time for the truth to dawn: in a financial crisis the line between solvency and commercial viability becomes blurred; by avoiding moral hazard in not extending the financing guarantee, the Bank was instead guaranteeing that Northern Rock grew from a potential one-bank-collapse to a systemic threat as public confidence in the banking system collapsed.

    By Monday the Bank had hurriedly reversed its ruling on Rock’s independence; any bank ready to help the authorities can now expect the Bank of England to reciprocate. Needs must…

    It’s stating the obvious, but this crisis will be studied through textbooks for years to come.

    How a RUN on a bank can change central banker´s principles ! WOW !:mad: :confused::eek:
  4. just shows you how little these politicians understand the financial markets.

    they say one thing , do another and then reneg on the original statement.

    i dont blame anyone queing up and getting their money out.

    ill guarentee you that none of the polticians or the boe has their savings in northern rock.

    if i see any queue developing outside my bank ill be straight downt there as well.

    when a central banker or politician says'dont panic'.

    i will panic.
  5. just21


    This smells like a government cock-up. Northern Rock is a Labour bank, not foreclosing on striking miners, giving 5% of profits to charity, unforetunately they lost and are putting other parts of the system at risk.
  6. Well if by Labour you mean that NR has helped expand the largest house price bubble the world has ever seen, financing BTL mortgages at the expense of hard working families, putting their depositors money at risk with a grossly leveraged business model which relied on cheap money flowing from the carry trade, well, yes they are a Labour bank that would make Bevan proud.
  7. just21


    I think all previous Labour leaders would be ashamed if they were alive to see the betrayal of the working class by this government. Even a Conservative government would do more for the working class than Labour, but turkeys do vote for christmas.