SATURDAY, NOVEMBER 22, 2008
Northern Rock Sinking Taxpayers II
The £3 billion of capital injected by the government in August can be kissed goodbye, another £3 billion will be needed soon and that will almost certainly go up in smoke as well. Well done to Vince Cable for giving the government such fulsome support in wasting billions- 28 million taxpayers won't thank you.
This is an amount enough to give every income-tax payer in the country a £1000 reduction for a year. A targeted fiscal stimulus. What exactly is the taxpayer gaining for subsidising the winding up of Northern Rock?
Northern Rock calls it a day on Granite vehicle
By Anousha Sakoui and Paul J Davies
Published: November 21 2008 02:00 | Last updated: November 21 2008 02:00
The vehicle that funded Northern Rock's ambitious expansion of mortgage lending has been cut loose by the state-run bank - a move that represents a shift in the wider world of mortgage finance.
The bank, advised by Credit Suisse, decided to let Granite, its £35.5bn securitisation programme or master trust, go into run-off, meaning that Northern Rock will no longer supply it with fresh mortgages and bondholders will be repaid as old mortgages expire.
Analysts believe the move makes more likely a wholesale shift away from the use of this form of funding among UK mortgage lenders.
"This event highlights that we are likely to see the banks return to simpler and transparent, rather than complicated and opaque, structures," said Birgit Specht, analyst at Citigroup.
Master trusts have been used to fuel mortgage lending by a string of UK banks - such as Abbey, HBOS, Barclays and Allliance & Leicester. But the credit crisis, which has shut down securitisation markets for more than a year, has meant none have been able to issue new debt.
Deutsche Bank said yesterday that the next trust most likely to suffer the same fate as Granite was Aire Valley, owned by Bradford & Bingley.
"We see greater risks that other bank sponsors will become more inclined to manage unwinds of their trusts as the securitisation funding channel becomes increasingly de-emphasised," said Ivan Pahlson-Moller, analyst at Deutsche Bank. "The one trust at risk in this respect is state-owned Bradford & Bingley's Aire Valley programme."
Analysts were surprised by the Granite move because the bank's management had said as recently as last month that the trust would not be cut loose. Mr Pahlson-Moller said that in response to a question in a teleconference on October 14, Ann Godbehere, Northern Rock chief financial officer, said Granite would not be wound down.
In April, Ron Sandler, executive chairman, said the bank would continue to write enough mortgages to support the Granite programme.
However, Northern Rock has now decided that it would not be in the interest of taxpayers to support the vehicle with new mortgages. The bank is trying to shrink its balance sheet and pay back a multi-billion pound government loan as quickly as possible.
Some Granite bondholders could face hundreds of millions of pounds in losses and not see their bonds mature for up to 20 years, while analysts said there was a definite risk to the taxpayer of losses on the bank's £3.3bn share of mortgages in Granite.
Additional reporting by Andrew Hill and Peter Thal Larsen
See Lombard
Copyright The Financial Times Limited 2008
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