HM Treasury today confirms that the guarantee arrangements for Northern Rock plc
described in HM Treasury's announcements dated 20 and 21 September 2007 and 9
October 2007 are being extended, at the request of Northern Rock plc, to the
following unsubordinated wholesale obligations, whether now existing or arising
in the future:
1. all uncollateralised and unsubordinated wholesale deposits and other
borrowings which are outside the guarantee arrangements previously announced by
HM Treasury;
2. all payment obligations of Northern Rock plc under any uncollateralised
derivative transactions;
3. in respect of all collateralised derivatives, and all wholesale
borrowings which are collateralised (including, without limitation, covered
bonds of Northern Rock plc), the payment obligations of Northern Rock plc to the
extent that those obligations exceed the available proceeds of the realised
collateral for the relevant derivative or borrowing; and
4. all obligations of Northern Rock plc to make payments on the repurchase
of mortgages under the documentation for the 'Granite' securitisation programme.
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9 comments:
Er, HG, could you translate #3 for me, please? :-) Seasons greetings to you.
A blank cheque to one, a carte blanche to all?
I seriously wonder what they've found under the 'Granite'
Hi Lilith, HG is out Xmas shopping, but 3 is easier than its jargon suggests.
In the extremely likely event of those Northern Rock assets used as collateral to raise money turned out to be worth less than needed to repay creditors, the shortfall will be made good by the Treasury.
A handsome Xmas present to NR creditors - and shareholders to the extent that the shortfall otherwise would have remained a claim on NR residual net assets, if any. In theory the Treasury will be able to recover any such disbursement from NR residual net assets, but we all know that if NR had had sufficient safe net assets there would have been no need for such a blank cheque, so aptly described as such by S.
Don't panic yet, it's going to get worse.
I'm still here, reading the Guardian amazed. Vince Cable says it best:
"It is outrageous that the taxpayer should now be carrying all the risk involved in keeping this bank afloat while having no direct control over its affairs," said Cable.
"The government is ensuring that if any sale is achieved the benefits will go to speculative investors and not back to the taxpayer,"
Xmas shops now.
This does not sound very prudent, or socially responsible to me.
On 19 November I posted we would reach half the GDP of Ireland.
We are there.
When a guarantee is given ex-ante, i.e. before and as part of a transaction - in exchange for a fee by a private guarantor, or as an implicit and not-so-transparent subsidy by a public agency - the guaranteed transactor benefits from an improvement in the terms of the transaction, for instance by paying a lower interest rate.
But when the guarantee is granted by a public agency, for free, AFTER the transaction is entered, and exclusively to relieve one of the parties from the adverse market consequences of decisions that turn out to have been mistaken, this is a scandalous and useless transfer of public wealth to the undeserving, it does not matterwhether rich or poor.
From today's Times:
Mr Brown and Mr Darling denied any rift with Mr King and rejected suggestions that they had ignored warnings that Northern Rock was in trouble. “The Governor and I and the Chancellor are completely at one in both the way we deal with these events and analyse what’s happened,” Mr Brown said
Elby points out that they have undergone the Vulcan Mindmeld.
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