any comments, thoughts, on this stock.

yup ..... but will leave to run for the moment at least, even though my gut feeling is that any bid will be worth no more than 2p!

Cant imagine any financial institution making a bid before examining NRK's books.

Goes without saying halifax.

To start a wider discussion, what is the value of NRK? People are bandying around extremely small numbers, but the value of the loan book must be substantial. Is there anyone around here who is good at the fundie stuff? I freely admit I'm crap and always have been. I mean they have to pay interest on what they've borrowed on the money markets too, but similarly they've got it coming in from the mortgagees who by all accounts are merrily paying what they are due every month. I could go on, but was wondering others views.

Anyone enlighten me?

I wonder if you should put the question to RAB Capital Big Al, they must of made some assessment having invested some 5% of its fund in NRK.

Big Al - NRK has 113bn of mortgages which need to be sold at a discount - if sold at only a 5% discount - that's a loss of 5.65bn - they have just over 2.bn of net assets so the bank would then be insolvent

response from broker re holding short positions if share suspended ...

Generally, it depends on the reason for suspension - and whether any explanations have been given. Risk make an assessment and almost always, the stock goes to full 100% Initial Margin. It is suspended at whatever the Exchange suspends it at, and then we wait until the stock either comes back to the market or disappears.

If a stock goes into administration then it would almost certainly go into suspension and again, 100% IM etc....would apply. But, since administration would most likely mean Bankruptcy, there could be other difficulties. It can be difficult or impossible to close the position, and if one could find a seller to match your short out, then it would require LSE approval. Also we would have to wait on the Administrators to see whether there are any other liabilities.

The knock-on effect from the US sub-prime market shows no sign of letting up in Japan.
In the last 7 days Origami Bank has folded, Sumo Bank has gone belly up and Bonsai bank announced plans to cut some of its branches. Yesterday is was announced that Karaoke Bank is up for sale and will likely go for a song while today shares in Kamikaze bank were suspended after they nose-dived and 500 back office staff at Karate Bank got the chop. Analysts report that there is something fishy going on at Sushi bank and staff fear they could get a raw deal.

Sounds like Northern Rock has turned into Rotten Pork

Falco .... you should be ashamed of yourself! .... lol!!

Good for a laugh Falco like it..

LOL Falco.

Cheers Balmoral. It still begs the question Gus proposed. I'm also uncertain as to why they need to sell at a discount.

Re the value of NRK mortgage book.
Think of it as a bond. ie it has a face value and a coupon, though the coupon is likely to be only just over the BoE base rate.
Add to this mix that the risk is higher now due to faorecasts of possible house value reductions and that NRK often lent more than a property was valued at.
Now add in that the income from these loans has to be collected from various sources, not just one, and the costs incurred from that and the legal expenses of protecting your investment through the courts if necessary, and that much of the book will never reach maturity, as the loan is repaid early at the borrowers discretion and you can now try to value it.
Discount of 5%?
Probably much higher than that.
Alan

AL ..... because this is pretty much a fire sale, so why on earth would anyone want or be prepared to pay full whack?

presumably it needs to be sold at a discount because the of the current higher cost of borrowing in the interbank markets.

Cheers Alan. That makes some sense, but all this seems very much dependent on house prices falling. I suppose they've lent to those who are stretched and would therefore have to re-possess and sell at a discount more likely than other banks / building societies.

As an aside, I guess we are also now seeing the fallacy of all those building socieites that demutualised and listed on the stock exchange. I knew that would end in tears. ;-)))


Meanwhile, as I write, she's rising into the close. Hmmm.

I would assume these guys flogged the debt into the market anyway as CDO's or whatever. They don't hold the lot, do they?

No they will have sold most of it periodically.
Thats the problem they have. They cannot sell more, because no-one wants to buy it at a price that keeps them solvent and they cannot use it to securitise more lending because it has little or no real value. Basically, due to lending very high loan to values, there is insufficient margin of value against security.
They have reached the point many householders reach of having borrowed against every bit of security they have.
Normally a private individual would then lend on a personal basis, but NRK cannot do that, because their business model is too precarious, based as it is on borrowing to lend out and living off the charges for doing so.
Would you lend money to an individual who has no security to offer and whose sole income was precarious?
(its all a bit more complicated, but that is close enough)
Alan

a pertinent excerpt ......

The UK lender now faces the prospect of being taken over by a competitor or by a private equity investor, or undergoing a break-up involving the sale of its mortgage book, its main asset.
However, some analysts were sceptical that a bid from a UK bank will materialise, arguing that rival lenders risk undermining their credit rating by taking on Northern Rock, and have little strategic incentive to mount a takeover bid.
'Theres almost a motivation for the UK banks to let this one wither on the vine. Its going to mean mortgage pricing improves because it takes out one of the most aggressive competitors in that market,' said Collins Stewart analyst Alex Potter.
'Northern Rock is going to be worth less and less the longer this situation is allowed to persist. The big banks appear to know this and for the moment are happy to sit on the sidelines,' Hichens, Harrison analyst Magnus Mathewson wrote in a research note.

ROUNDUP Northern Rock rallies following bid approaches


LONDON (Thomson Financial) - Shares in stricken UK mortgage lender Northern
Rock PLC jumped more than 12 pct today after it said late on Thursday that it
had received approaches from "a number" of potential buyers or investors.
Shares in Northern Rock closed 11.6 pct higher at 182 pence, while the FTSE
100 index settled 0.56 pct higher at 6,433 points.
The rally reflected hopes of an imminent takeover bid for the bank after it
revealed last night that it had received an unspecified number of approaches
from unnamed parties regarding "a variety of potential transactions."
Northern Rock said one of the approaches involved a potential takeover
offer, although it stressed that there had been no discussions about price.
"The fact that interested parties are emerging will be undoubtedly be taken
positively by the market this morning," Bear Stearns analyst Robert Sage wrote
in a note.
Northern Rock has lost three quarters of its market value since it revealed
on Sept 14 that this summer's global credit crunch had forced it to seek
emergency funding from the Bank of England.
The group, which relied on wholesale markets for 75 pct of its lending, was
more vulnerable than any other to an abrupt withdrawal of liquidity in early
August as banks stopped lending to each other amid worries over a surge in
defaults against sub-prime mortgages in the US.
The UK lender now faces the prospect of being taken over by a competitor or
by a private equity investor, or undergoing a break-up involving the sale of its
mortgage book, its main asset.
However, some analysts were sceptical that a bid from a UK bank will
materialise, arguing that rival lenders risk undermining their credit rating by
taking on Northern Rock, and have little strategic incentive to mount a takeover
bid.
"Theres almost a motivation for the UK banks to let this one wither on the
vine. Its going to mean mortgage pricing improves because it takes out one of
the most aggressive competitors in that market," said Collins Stewart analyst
Alex Potter.
"Northern Rock is going to be worth less and less the longer this situation
is allowed to persist. The big banks appear to know this and for the moment are
happy to sit on the sidelines," Hichens, Harrison analyst Magnus Mathewson wrote
in a research note.
Lloyds TSB considered making a bid for Northern Rock before its funding
crisis became public, but decided not to proceed, sources told Thomson Financial
News last week.
According to today's Times newspaper, one of the approaches to Northern Rock
came from Spanish businessman Jose Maria Ruiz Mateos, whose company Nuevo Rumasa
earlier this year bought the Spanish operations of Parmalat, the Italian food
company that came close to collapse in 2003.

UK's tripartite system of banking regulation 'found wanting under fire' - CBI
AFX


LONDON (Thomson Financial) - The UK's three institutions in charge of banking regulation and financial stability failed their first big test this month when credit concerns caused a run on a UK bank, a leading business lobby said today.

Richard Lambert, director-general of the Confederation of British Industry, said the so-called tripartite system -- comprising the Bank of England, the Financial Services Authority and the Treasury -- had 'been found wanting under fire.'

The run on lender Northern Rock Plc is something you would expect in a 'banana republic', Lambert said.

'That one should have happened in a mature and prosperous country like the UK is almost unimaginable,' he said at the CBI North East Annual Dinner in Northern Rock's home city of Newcastle-upon-Tyne.

He noted that the tripartite system was devised so that the FSA would monitor individual banks, the BoE would deal with systemic crises and sign the cheques, while the Treasury would provide public funds to keep sound institutions in business when necessary.

'For whatever reason, this tripartite system has failed to deliver the goods. Perhaps there are just too many conflicts inherent in a system where three different institutions, with three different policy priorities, have to come together to tackle a fast-moving crisis,' Lambert said.

He said it was not enough to blame current legislation, as BoE Governor Mervyn King did last week in his testimony before MPs.

'You don't wait for the cinema to catch fire before you check out whether the fire precautions are going to work,' Lambert said.

He suggested the relationship between the three supervisory authorities be re-examined to identify who should have the overriding authority in the event of a crisis.

Lambert said the process whereby the BoE acts as lender of last resort would have to be re-assessed, as the impact such a policy had on Northern Rock illustrated.

Furthermore, the deposit protection scheme -- where deposits above 35,000 are not guaranteed -- would need to be reviewed and changed, he said.

'The goal must be to strike the right balance between reassurance for the few, and costs for the many,' Lambert said.