This has been a story which has dominated British politics over the last six months. This week yet another new development which surely can never have been seen back in the summer - Nationalisation of the bank. For the Labour government this has been a very public humiliation but also for the UK financial establishment.
One of the aspects however of the Northern Rock crisis has been, in my judgement, the performance generally of the UK financial media. Many stories have been broken by the media in a timescale which may not have suited regulators and other bodies.
Thursday, 21 February 2008
Thursday, 22 November 2007
Northern Rock shareholders take their argument to the airwaves
An interesting aspect of the Northern Rock saga, is its demonstration of how weak shareholders can be in terms of influencing executive action particularly when events are moving quickly.
By going quietly, understandably, to the Bank of England to get emergency loans, Northern Rock management has been party to what appears to be the total dilution of shareholder value, or as good as, and at the same time the influence of shareholders. Northern Rock last year, I think was worth £5bn, today it is worth less than £400 million.
No wonder the shareholders are taking their case to the media. Sadly there is very little sympathy for their case from the media because the main shareholders now are hedge funds looking to see what might happen as the carcase is picked over. However many small shareholders were/are Northern Rock employees who have worked for the company for many years.
The hedge funds are not used to being so ignored but it would appear they are potentially sitting on major losses if as expected that Northern Rock is sold for a nominal sum. Certainly the driving force in sorting out Northern Rock appears to the UK government via the Treasury and Bank of England. The board of Northern Rock essentially all resigned last week. It is not often you see a FTSE100 publicly quoted company with no details at all on main board, audit committee etc - take a look at the web site.
Might the shareholders take their case to the courts. Certainly it is being managed by government as though it is nationalised. What is its exact legal entity currently and might this have issues for any decisions taken in this interim period. When companies talk about running the company on behalf of shareholders - remember that does not include banks which have had to run to the Bank of England.
By going quietly, understandably, to the Bank of England to get emergency loans, Northern Rock management has been party to what appears to be the total dilution of shareholder value, or as good as, and at the same time the influence of shareholders. Northern Rock last year, I think was worth £5bn, today it is worth less than £400 million.
No wonder the shareholders are taking their case to the media. Sadly there is very little sympathy for their case from the media because the main shareholders now are hedge funds looking to see what might happen as the carcase is picked over. However many small shareholders were/are Northern Rock employees who have worked for the company for many years.
The hedge funds are not used to being so ignored but it would appear they are potentially sitting on major losses if as expected that Northern Rock is sold for a nominal sum. Certainly the driving force in sorting out Northern Rock appears to the UK government via the Treasury and Bank of England. The board of Northern Rock essentially all resigned last week. It is not often you see a FTSE100 publicly quoted company with no details at all on main board, audit committee etc - take a look at the web site.
Might the shareholders take their case to the courts. Certainly it is being managed by government as though it is nationalised. What is its exact legal entity currently and might this have issues for any decisions taken in this interim period. When companies talk about running the company on behalf of shareholders - remember that does not include banks which have had to run to the Bank of England.
Thursday, 15 November 2007
Barclays Capital - follow the flow of communications
A good opportunity to analyse the information flows related to Barclays Capital comes with today's rushed announcement to calm City concerns.
Last week major rumours swept financial markets that Barclays was in greater trouble than it was admitting over collaterised debt obligations (CDO). Barclays Capital, part of Barclays, and one of the main driver of profit for the group, had been one of the most aggressive operators in terms of handling and repackaging subprime mortgages. Interesting to note the intensity of the information flows around this topic of Barclays rumours. According to Google there are over 500,000 search results on the topic. I went to page 10 of these on the Google Search page and they were still highly relevant. A good example of an information "firestorm".
Today they have rushed out an announcement from Barclays Capital, see link above which has covered in great detail, Barclays treatment and exposure to collaterised debt obligations. Seems reassuring and initial coverage on the story seems to be reassuring markets.
Barclays share price at 1251, Thursday was: 533p up 6p on the day suggesting that markets take this positively. A good example of market transparency at work? Let's see the reaction tomorrow and later in the week.
Last week major rumours swept financial markets that Barclays was in greater trouble than it was admitting over collaterised debt obligations (CDO). Barclays Capital, part of Barclays, and one of the main driver of profit for the group, had been one of the most aggressive operators in terms of handling and repackaging subprime mortgages. Interesting to note the intensity of the information flows around this topic of Barclays rumours. According to Google there are over 500,000 search results on the topic. I went to page 10 of these on the Google Search page and they were still highly relevant. A good example of an information "firestorm".
Today they have rushed out an announcement from Barclays Capital, see link above which has covered in great detail, Barclays treatment and exposure to collaterised debt obligations. Seems reassuring and initial coverage on the story seems to be reassuring markets.
Barclays share price at 1251, Thursday was: 533p up 6p on the day suggesting that markets take this positively. A good example of market transparency at work? Let's see the reaction tomorrow and later in the week.
Wednesday, 14 November 2007
Syndicated loans - underwriters show how to run an issue campaign
A good example of how financial media can be used to develop an issue campaign can be seen by recent coverage on syndicated loans.
Syndicated loans is another area being affected by the spreading ripples of the subprime financial problems. Just as subprime mortgages are packaged up and sold off, so corporate loans are packaged up and sold off by the lead institution(s). However this has become increasingly difficult in the general and gathering credit problems and for example the backers of Boots, a massive management buyout, at the top of the market, has only been partially syndicated, leaving the lead banks nursing a potentially significant hangover on their balance sheets.
The conference, sponsored by Reuters, has highlighted that the major underwriting banks are refusing to discount the syndicated loans on their books unlike US banks. Other members of the large underwriting community, perhaps feeling the lack of business, are highlighting the role of some European banks which are not discounting below par i.e. taking a loss.
By bringing it to wider attention and media coverage, they are ensuring that the investment community will be discounting these loans on the underwriting banks' books and so in effect forcing them to probably start discounting over the coming months.
Syndicated loans is another area being affected by the spreading ripples of the subprime financial problems. Just as subprime mortgages are packaged up and sold off, so corporate loans are packaged up and sold off by the lead institution(s). However this has become increasingly difficult in the general and gathering credit problems and for example the backers of Boots, a massive management buyout, at the top of the market, has only been partially syndicated, leaving the lead banks nursing a potentially significant hangover on their balance sheets.
The conference, sponsored by Reuters, has highlighted that the major underwriting banks are refusing to discount the syndicated loans on their books unlike US banks. Other members of the large underwriting community, perhaps feeling the lack of business, are highlighting the role of some European banks which are not discounting below par i.e. taking a loss.
By bringing it to wider attention and media coverage, they are ensuring that the investment community will be discounting these loans on the underwriting banks' books and so in effect forcing them to probably start discounting over the coming months.
Thursday, 8 November 2007
What's in a word
Alot more than you think. The Financial Times today has highlighted the example of both Chuck Prince former CEO of Citigroup and Stan O'Neal, former CEO of Merrill Lynch both departed over the past week due to the sub-prime crisis and the impact this has had on their respective banks in terms of write-downs. They have both "retired" rather than "resigned". Take a look at the official announcement of Chuck Prince's departure on the
web site press centre I saw it a few days ago and did not pick up on significance of use of language.
Silly. As John Gapper of the FT points out today, there is a great deal of significance in the word. According to the article and because they retired not resigned, they will walk away with significant amounts in unvested shares i.e ones which he has not bought even at a low price but has been able to leave on the shelf until required. In the case of Chuck Prince this means a further $40million. So now we can see the reason for the delay in Chuck Prince's announcement. The lawyers were hard at work agreeing a statement and there was a great deal of signficance in the words. Good lesson - always remember to deconstruct the official statement, the use of words is invariably very important.
Gapper nicely brings into the piece the element of moral hazard about the deal. He says this is an example of moral hazard, encouraging potentially reckless behaviour. Brings us back to Northern Rock and Governor of the Bank of England. Do you remember that moral hazard was the very real concern he had when considering whether to support the bank or let it fail as he indicated when appearing before the House of Commons Parliamentary Finance and Treasury committee. Interesting how certain phrases which we may or may not have heard of or used before, suddenly become common currency for a while.
web site press centre I saw it a few days ago and did not pick up on significance of use of language.
Silly. As John Gapper of the FT points out today, there is a great deal of significance in the word. According to the article and because they retired not resigned, they will walk away with significant amounts in unvested shares i.e ones which he has not bought even at a low price but has been able to leave on the shelf until required. In the case of Chuck Prince this means a further $40million. So now we can see the reason for the delay in Chuck Prince's announcement. The lawyers were hard at work agreeing a statement and there was a great deal of signficance in the words. Good lesson - always remember to deconstruct the official statement, the use of words is invariably very important.
Gapper nicely brings into the piece the element of moral hazard about the deal. He says this is an example of moral hazard, encouraging potentially reckless behaviour. Brings us back to Northern Rock and Governor of the Bank of England. Do you remember that moral hazard was the very real concern he had when considering whether to support the bank or let it fail as he indicated when appearing before the House of Commons Parliamentary Finance and Treasury committee. Interesting how certain phrases which we may or may not have heard of or used before, suddenly become common currency for a while.
Wednesday, 7 November 2007
Investment in financial media
Take a look at an article in Le Figaro today highlighting investment in financial media both in France and globally.
Sunday, 4 November 2007
Press coverage on victims of subprime mortgages
Here is some coverage from US local media on the experiences of ordinary people taking out mortgages and the problems they are getting into potentially leading to foreclosures. This is driving the issue of subprime mortgages and the current problem facing all the major banks - how much provisions should they make for these. There is a particular category of sub-sub prime mortgages which some analysts are saying may have to be provisioned nearly up to 100%.
From Battle Creek, Michigan in the heart of the American industrial belt.
Finally a sobering perspective of the scale of the problem from the Sun Times Chicago Group with a US wide perspective on US repossessions. Potentially over a millon homes are likely to be involved in repossession orders over the coming 12 months up 100% from last year. Florida, California and Nevada have the highest rates.
Stories like these highlight how regional and local stories on this issue providing information from the front line will have an impact on financial markets as they are picked up by analysts and investors. Equally the Florida, California and Nevada housing markets will be closely watched over the next 12 months to see the point where better news (hopefully) starts to permeate through to financial markets and where reposessions start to head down.
From Battle Creek, Michigan in the heart of the American industrial belt.
Finally a sobering perspective of the scale of the problem from the Sun Times Chicago Group with a US wide perspective on US repossessions. Potentially over a millon homes are likely to be involved in repossession orders over the coming 12 months up 100% from last year. Florida, California and Nevada have the highest rates.
Stories like these highlight how regional and local stories on this issue providing information from the front line will have an impact on financial markets as they are picked up by analysts and investors. Equally the Florida, California and Nevada housing markets will be closely watched over the next 12 months to see the point where better news (hopefully) starts to permeate through to financial markets and where reposessions start to head down.
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