Chapter 563 £25 billion
Northern Rock Bank was founded in 1850. In its early days, it was just a housing loan association. In 1997, it became a bank and went public.
Currently, the bank is the fifth largest mortgage lender in the UK, with 1.5 million savers and providing housing loans to 800,000 home buyers, which is a huge scale.
Just in the first half of this year, Northrock Bank’s new mortgage loans accounted for 18.9% of the country’s total new mortgage loans, ranking first in the UK.
In fact, unlike other banks whose funds mainly come from depositors, although Northrock Bank has transformed into a listed bank in 1997, most of its funds still come from financial institutions.
Less than 25% of Northern Rock's funding comes from retail deposits, while more than 75% comes from the wholesale market - through interbank lending, issuing bonds or selling asset-backed securities. to finance.
Given the stability of retail deposit financing, Northrock Bank, which sources most of its funds from the wholesale market, is more susceptible to the impact of the supply and demand of funds in the market.
In addition, Northen Rock Bank is known for its bold lending, which is somewhat similar to New Century Financial Corporation's approach. It loans home buyers up to 100% of the house price, which is 5 to 6 times more than the home buyer's income. , some even give 125% of the house price!
And it also gives large loans to investors who buy to let.
These radical measures have placed Northrock Bank at the top of the list of new mortgage loans in the UK.
Therefore, when the subprime mortgage crisis swept across the United States and a wave of caution arose in the global banking community, many banks had no idea how much money they had invested in this shaky system.
All banks began to tighten their purse strings, slowing down or stopping lending to each other.
In this context, Northrock Bank inevitably encountered the problem of financing difficulties.
It is precisely for this reason that when depositors were worried about a run, the cash flow of Northen Rock Bank immediately dried up...
It is said that Northen Rock Bank In just a few days, more than 2 billion pounds of deposits have been withdrawn from the bank by depositors.
Northern Rock Bank has a total of about 1.5 million depositors, who originally had about 24 billion pounds in deposits with the bank.
But it is obvious that due to its aggressive lending strategy, Northrock Bank can no longer cope with more runs and can only seek help from the British financial regulator and the Bank of England.
Even Northron Rock Bank has tried to contact DS Group to ask if they can pay back the previous mortgage loan early - starting from a 4 billion pound loan from North Rock Bank by mortgaging part of O2 Telecom shares. The total amount of DS Group's loans with this bank has exceeded 6.5 billion pounds.
But these loans were all 5-year loans, so DS Group rejected the other party without hesitation. After all, everyone needs to do things according to the contract...
In the end, the previous In one scene, in order to cope with the crisis, British Finance Minister Darling announced on September 25 that the British government would provide a guarantee for Northrock Bank to protect the safety of depositors' deposits in the bank.
Darling said: "Depositors can continue to withdraw their money from Northrock Bank, but if they choose to keep their money in the bank, we will ensure that the deposits are safe."
He also said that the Bank of England - England Both the Bank and the Financial Services Authority will work together to ensure the "normal operations" of Northrock Bank.
After this news came out, more depositors went to Northron Rock Bank to queue up to withdraw money...
When a long queue began to form in front of the bank and TV news began to report , the report that "Northern Rock Bank suffered another run" spread to everyone's ears.
Depositors who had deposited money online were withdrawing cash one after another, so much so that bank servers could no longer bear the heavy load.
Panic intensified when word spread that online customers were unable to withdraw cash. Everyone is worried that when this bank has fallen to the point where it needs to ask the government and the Bank of England for help, the safest way is to withdraw its deposits from this bank...
Now, the share price of Northrock Bank has fallen by more than 80% from its highest point this year!
For Catherine, although the 8% of Northrock Bank shares she held suffered heavy losses, she had made up for the losses to the maximum extent through previous short selling.
DS Holdings also made huge profits by shorting Northroc Bank.
And the irony is that they are shorting the stocks borrowed by Northrock Bank, and it is even possible that some of them come from the Hall family...
But it is still not over yet.
After the Bank of England, on behalf of the British government, injected 12 billion pounds of capital into Northrock Bank for the first time on September 25, the run on the bank did not ease, but intensified...
The Bank of England had to inject a second tranche of 8 billion pounds of capital into Northrone Bank a week later, before the run on Northenloe Bank finally subsided.
However, both the shareholders of Northrock Bank and the British government understand that the bank has only been temporarily bandaged to stop bleeding, but if it is to continue to survive, it needs to revive investors and depositors' confidence in this bank, otherwise the only result waiting for Northrock Bank is bankruptcy.
But first of all, everyone has been extremely disappointed with the way Northrock Bank operates. In addition, it is still difficult to calculate the specific statistics. In this crisis, affected by the subprime mortgage crisis, Northrock Bank’s losses How big is it? Therefore, Northenroc Bank alone cannot survive this crisis safely.
Therefore, the British government's opinion at this time is to find a suitable successor for Northrock Bank, so as to rectify the bank and restore market confidence.
In fact, since the run on Northrock Bank, it is not that there are no other banks and institutions interested in it.
For example, there are currently more than ten companies and consortiums including Virgin Group, a consortium led by investment company Olivant, and Paul Thompson.
Among them is a consortium composed of Standard Chartered Bank and DS Group.
However, although there are many institutions and consortiums interested in Northrock Bank, it is still difficult to reach an acquisition agreement in a short time.
Because these institutions and consortiums, in addition to negotiating the acquisition with the board of directors of Northron Rock Bank, their acquisitions also need to obtain North Rock Bank’s largest creditor at this time, the British government. Only with consent.
This is the most difficult point. You must know that when the run on Northrock Bank occurred, the British government injected a total of 20 billion pounds into it through the Bank of England in two times, and afterwards , in order to rectify its lending business, the Bank of England once again injected 5 billion pounds of funds into Northron Rock Bank...
And this total of 25 billion pounds of funds is not a free loan to North Rock Bank used.
Because according to the philosophy of the British government, there has always been minimal intervention in banks - this is why Northrock Bank, after a run occurred, asked the government and the central bank for help. It took more than ten days for the British government and central bank to decide the reasons for the rescue.
During this period, the British Ministry of Finance, the Central Bank and the Financial Services Agency had intense discussions on whether to make a decision on whether to rescue Northron Rock Bank. In the end, in order to avoid the situation from continuing to spread and expand, the decision was finally made. Northrock Bank's decision to inject capital into the bank.
But at the same time, this kind of bailout must not be free, so as to avoid the possibility that other banks will make rash business decisions and ultimately leave a mess to the government - to put it simply, Northrock's shareholders and management must pay for their mistakes.
Therefore, the 25 billion pounds of funds injected by the Bank of England into Northrock Bank were all in the form of borrowings, and interest was also required to be paid to the government.
(End of this chapter)