Assetsure News 16th September 2007

Possible Sale of Northern Rock?

The UK mortgage market is suffering from the global the credit crisis as thousands of savers lining up outside branches of the Northern Rock hoping to withdraw their savings. The troubled lender requested emergency funding from the bank restore of England last week. The Government's attempt to sooth peoples worries and concerns and explain this was somehow part of how the banks worked has not worked. Ordinary investors saw non stop television reports and are not sharing the government's confidence in Northern Rock's ability to survive this crisis.

Despite the fact that the Financial Services authority declared the bank to be solvent, worried investors continue to queue outside branches prompting the possible sale of the entire bank. Northern Rock problems come from the fact that they had borrowed 75% of the cash it needed to compete and grow on the high street, from the wholesale debt markets (as opposed to using money raised by savers). Northern Rock provides buildings and contents insurance branded as'cover me', mortgage payment protection branded as'paysafe' and mortgage protection insurance.

After the Northern Rock crisis resolves itself, will this mean a tightening up of the baking rules across the UK? Will higher structural costs for banking be passed on to mortgage borrowers? and will these impact the confidence in the property market generally? This case highlights the fragility and speed, complexity and impact of the money markets on a specific financial services company. Could this sort of situation occur to a UK insurance company?... the miss selling of payment protection insurance, endowment mortgages and trading scandals of the past are symptoms of lack of management control.  The use of money markets to fund, compete and grow is now higher on the agenda of senior management as the USA credit crisis continues to impact other parts of the world.