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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.
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Copyright Assetsure Limited 2007
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