Northern Rock – wishful thinking

It’s now been just over a year since the credit crunch began, and there are many indicators of stress out there – equity market falls, credit spreads widening, and collapsing consumer confidence are all things we’ve focused on over the last year.

Unsurprisingly, the main stress has been in the financial sector, the epicentre of this crisis. This is best typified by the fall of Northern Rock, whose downfall we have chronicled in depth on this blog – for more information see Not waving but drowning (Jun 07), Northern Rock not so solid any more (Jul 07), Beware of Falling Rocks (Sep 07), Northern Lights (Oct 07), a Christmas-themed Stable conditions (Dec 07), and most recently Recovery plan doomed? (May 08)

Yesterday the government announced that it was injecting £3 billion of its (our) money to subscribe for shares in Northern Rock. Northern Rock’s market cap peaked at over £5bn at the beginning of 2007, had fallen to £3.6 billion by June last year. By the time its shares were delisted, it had a market cap of £380m. Now it’s apparently worth almost 10 times what it was valued at in February this year. Wow.

Have things really barely deteriorated from the summer of last year? Have we really seen the most dramatic turn around in corporate history in the last six months? Today, Nationwide announced that UK consumer confidence dropped in July by the most since records began in 2004. It is very wishful thinking to hope that the first time buyer will return, the housing market will not fall, the economy is robust – and most of all – that Northern Rock is worth three billion pounds!


The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.

Discuss Article

  1. longodds says:

    Richard Glad to see you make that point. When I read the announcement and saw the figure my first thought was I must have got it wrong because my recollection was that it's delisted value wasn't far from £400 million. Given that so many writedowns/write offs have happened since I thought I had got the NRK figure mixed up with another casualty. More tax payer's money into the black hole that is the flawed, under regulated, “accident ” prone banking sector. We are seeing the final death throes of a fatally wounded Government. Mr Brown and his Chancellor appear to have learned nothing at all from the mistakes made in the past, particularly in America with regard to perpetuating bubbles by failing to allow the natural economic process of boom and bust to take it's course. Re: Northern Rock – wishful thinking

    Posted on: 06/08/08 | 12:00 am
  2. Edward Painter says:

    You will not often find me agreeing with the current government, however I am (reluctantly) accepting of the need to inject fresh capital into Northern Rock. Barclays, RBS, HBOS all went cap in hand to shareholders, A&L's board near bit the hand of Santander (which coincidently for a bank where the domestic housing market is as bad, if not worse than the uk, has been steered remarkably well), so it would have been naive of us not to expect that the Rock required substantial funds. It has at least gone some way to clearing its mortgage book, however I for one am unsurprised that when those remaining are forced onto punitive rates they are starting to default, and this in turn is affecting the business plan. Can’t really win, can they? Re: Northern Rock – wishful thinking

    Posted on: 06/08/08 | 12:00 am

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