Chapter 563 £25 billion

Northrock 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 supply and demand of funds in the market.

In addition, Northrock Bank is famous for its bold lending, which is somewhat similar to New Century Financial Corporation's approach. It provides loans to home buyers as much as 100% of the house price, exceeding the home buyer's income by 5 to 6 times, and some even provide loans of up to 100% of the house price. 125% of the price!

And it also lends heavily to buy-to-let investors.

These radical measures have enabled Northrock Bank to rank first in the UK in terms of new mortgage loans.

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 and slow down or stop lending to each other.

Against this background, Northrock Bank inevitably encountered the problem of financing difficulties.

It is precisely because of this that when depositors were worried about a run, Northrock Bank's cash flow immediately dried up...

It is said that more than 2 billion pounds of Northrock Bank deposits have been withdrawn from the bank by depositors in just a few days.

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 was obvious that due to its aggressive lending strategy, Northrock Bank could no longer cope with more runs and could only seek help from the British financial regulator and the Bank of England.

Even Northron Rock Bank had tried to contact DS Group to ask if they could return the previous mortgage loan early - starting from a 4 billion pound loan from North Rock Bank by pledging part of O2 Telecom shares, DS Group had a loan with this bank. The total amount of loans 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 scene appeared. 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.

"Depositors can continue to withdraw their money from Northrock, but if they choose to keep their money at the bank, we will ensure that their deposits are safe," Darling said.

He also said that the Bank of England, the Bank of England, and the Financial Services Authority will work together to ensure the "normal operation" of Northrock Bank.

After this news came out, more depositors queued up to withdraw money at Northrock Bank...

When long queues 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 their cash so much that bank servers were overwhelmed.

Panic intensified when word spread that online customers were unable to withdraw cash.

Everyone is worried that when this bank has been reduced 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 shorted the stocks borrowed by Northrock Bank, and it is even possible that some of them came from the Hall family...

But it's still not the end 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 into Northrock Bank a week later before the run on Northrock 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 is necessary to reinvigorate investors and savers' interest in the bank. The confidence of the bank, otherwise the only result waiting for Northen Rock 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 itself 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, there is also 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 the consent of North Rock Bank's largest creditor at this time, the British government.

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 later, in order to rectify its lending business , the Bank of England once again injected 5 billion pounds of capital into Northrock Bank...

This total of 25 billion pounds of funds is not freely available to Northen Rock Bank.

Because according to the philosophy of the British government, there has always been minimal intervention in banks - which is why it took more than ten days for Northrock Bank to seek help from the government and the central bank after a run occurred. The reason why the British government and central bank decided to rescue it.

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, which may ultimately leave the government with a mess. Simply put, Northrock Bank’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.