I am a businessman by background. I have occasionally bought or sold companies. Never have I been asked to buy a company with so little information available on its assets, liabilities, past and possible future performance as today, when the government wants me to approve the purchase of Northern Rock for taxpayers. Never have I been asked to put my name to such a huge commitment before – placing the taxpayer at risk for more than £110 billion.
They will not tell me how much they wish to pay for the shares. That will be decided after they have announced the purchase and legislated for it! This is not the usual negotiating procedure between buyer and seller.
Because they are compelling sale by the shareholders, they leave taxpayers open to lawsuits. I doubt they will tell us how much of a risk that is, nor will we be given their legal advice to make our own decision about how likely a successful legal challenge for compensation might be.
We will not be told what is the true state of the mortgages that are the banks’ main assets, and we will not be given a schedule of either assets or liabilities. There will be no accountant’s reports, no assessment of the term structure of the loans and assets, and no commentary on the likely movement in the bad debts.
We will not see management accounts for the last year, and we will not have budgets for the next couple of years. We will not even be told what the general outlines of the business plan might be, because they are awaiting clearance from Brussels for how much new trading they can undertake. They will have to be careful about what the bank can offer in the marketplace, as its privileged access to public money leaves it open to allegations of anti competitive trading if it gets the offer wrong.
We will not be given a report on the size of the deficit in the pension scheme and how that has been calculated, nor will we be warned that the pension deficit might be about to get larger in the light of recent regulatory and actuarial comments on how people are all living much longer than has been allowed for in many a pension fund calculation.
There will be no environmental report on the properties with an assessment of risk under Environmental regulation, which any purchaser would need these days. There will be no property report about the leases and freeholds, and the lease and maintenance obligations.
We will not see the main contracts of the very expensive senior staff to be able to review the bonus arrangements and to see how much it will cost taxpayers if we need to terminate some of their employments. We will not receive a Human Resources report on pay, morale and efficiency of the workforce we will inherit.
There will be no survey of customer attitudes or study of the value of the brand post the disturbing changes to it in recent weeks. There will be no report on the relationship with the Trust, on the ability of a public enterprise to sponsor one particular football team or on the extent to which a nationalised company can continue the social and community work Northern Rock performed in its profitable private sector days.
In sum, Parliament will have none of the usual information directors would require as matter of course from acquiring management and their advisers before consenting to an acquisition. Perhaps for that reason Parliament is once again being railroaded and sidelined by the government. It is a farce to allow only one busy Parliamentary day to consider all stages of the Commons procedure for this bill. It means we have had no normal time to read the Bill and table amendments, and if we had there will be insufficient time to debate them. This is rushed debate on a botched nationalisation by a government which has not done its homework. The taxpayer is being put into a deal without knowing the price or the long term risk and cost. Ministers tell us all that taxpayers are risking is guarantee. Not so Ministers – the taxpayer is now liable for every broken window in a branch, every severance and pension payment, every mortgage and loan. If the assets cannot cover the cost of these things taxpayers will have to pay more tax to sort it out.
February 19, 2008
This poor excuse for a ‘government’ looks less and less ‘fit for purpose’. Suggestions in the media that Gordon Bean is sleeping only two or three hours per night are probably accurate as anyone in his precarious position would be having sleepless nights. I notice with some amusement that Labour’s line of defence against George Osbourne is that ‘you did nt have a better solution’.
That kind of argument simply emphasises exactly how weak Brown and Darling are.
It is not only Darling who is politically a dead man walking; all of Bean’s men are has-beens.
February 19, 2008
So typical New Labour then; when the pensions raid was made either Mr Brown knew what he was doing and it was a vile and highly political attack on the middle classes or he did not know and it was just incompetance. Northern Rock is the abuse of taxpayers money in what Mr Brown sees to be Labour advantage, but due to malignaty or incompetance we have the present debacle. NR should have either been quitely bought out by Lloyds (stopped by the government) or put into administration. (Browns regulation changes in 1997 having failed). What we have is the Byers/Rover mess all over again and short term Labour advantage turns out to be the worst for the rest of us over the longer term.
February 19, 2008
And what will happen once it has been nationalised?
It will become a public body and subject to the provisions of the Human Rights Act 1998.
National Rock, as a public body is going to find it difficult to defend itself when individuals make claims against them for repossessions, especially if they use Article 8 and Article 1 of the first protocol.
Under the Human Rights Act 1998 all courts are required to make their decisions in accordance with the provisions of the European Convention on Human Rights and the usual procedures apply for appeals to the Court of Appeal and the House of Lords and ultimately to the European Court of Human Rights. Courts have to interpret legislation in a way, which makes it compatible with the European Convention, and they can invalidate secondary legislation if it is not compatible with the Convention.
February 19, 2008
"- Parliament is once again being railroaded and sidelined by the government. "
Rather like the situation with going into the 1st World War .
A one-day debate too!
February 19, 2008
I expect other people have seen the film clips of GB falling asleep on the job. He was never going to be up to it, and now at last the broadcasters have admitted it – but in their usual poisonous way they are are suggesting Mrs T also got tired and made erratic decisions, which "balanced criticism" will now pass into the historical record.
February 19, 2008
I am impressed by the sheer expertise of all the rest of you!
However, did you notice that the Conservative leader and shadow chancellor did their announcement to a news conference, not to parliament last evening? So much for "In sum, Parliament will have none of the usual information directors would require as matter of course from acquiring management and their advisers before consenting to an acquisition."
Kossovo seems to me to be very like the start of the First World War with the West and Russia at loggerheads. The Russians, however, have an army…. And was this debated at all in Parliament?
It seems that our national legislature is getting more and more irrelevant.
I am thinking of doing a bumper sticker with
"ENGLAND – micromanaged by lawyers."
Do you know what? I still give this lot until Ester.
Reply: This is very unlike the conditions in 1945.
February 19, 2008
Having read your blogs on the subject of Northern Rock I have to conclude that your absence from the Shadow Cabinet is an error on the part of successive Conservative Leaders . The Tories did look a bit clueless yesterday as Labour & the Lib Dems cuddled up to each other . Labour are being pretty hopeless while the Tories struggle to get to the level of support needed to regain office at the next general election . Beating Labour on the economy is crucial so what the Conservatives need to do is offer an alternative to Labour’s flawed tripartite banking system and flawed fiscal policy . Just shouting about Northern Rock & calling for the Chancellor’s resignation is not enough . The PM will never sack Alistair Darling as he knows all about the rows between Blair & Brown and inherited a mares nest from Brown . Mr Darling is a useful fall guy to take the flak while Brown continues to run the Treasury from Number 10 . The U- Turns on non doms , CGT & tax powers for the Holyrood Parliament were done at the PM’s order . The Tories should ignore the Chancellor and just attack Gordon Brown over the economy while offering some helpful ideas on monetary & fiscal policy .
February 19, 2008
Having read your blogs on the subject of Northern Rock I have to conclude that your absence from the Shadow Cabinet is an error on the part of successive Conservative Leaders . The Tories did look a bit clueless yesterday as Labour & the Lib Dems cuddled up to each other . Labour are being pretty hopeless while the Tories struggle to get to the level of support needed to regain office at the next general election . Beating Labour on the economy is crucial so what the Conservatives need to do is offer an alternative to Labour's flawed tripartite banking system and flawed fiscal policy . Just shouting about Northern Rock & calling for the Chancellor's resignation is not enough . The PM will never sack Alistair Darling as he knows all about the rows between Blair & Brown and inherited a mares nest from Brown . Mr Darling is a useful fall guy to take the flak while Brown continues to run the Treasury from Number 10 . The U- Turns on non doms , CGT & tax powers for the Holyrood Parliament were done at the PM's order . The Tories should ignore the Chancellor and just attack Gordon Brown over the economy while offering some helpful ideas on monetary & fiscal policy .
February 19, 2008
This is not a 'purchase' as we know it. The whole ghastly spectacle is one of financial fois gras – the goose being Northern Rock and the corn being taxpayers cash being regularly shovelled down the neck of the bank by HMG. Unfortunately it's the taxpayer who is now cooked.
Let's understand that right at the outset the Government was faced with a simple choice of allowing market forces to prevail or of full State involvement. Never mind all of this persiflage about seeking a 'commercial solution' – that was never a runner, given the suitors and given the immediate response by the Government to the original offer from a proper bank. The single driver in all of this has been the political implication – tomorrow's headlines. And now the Government has even managed to mishandle that. Utter incompetence.
February 20, 2008
Good to see some actual analysis and critique as opposed to the whining coming from the Tory leadership about hearkening back to the 1970's, etc.
February 20, 2008
Para left out
From my perspective, it seems a paradox that we have a Government sitting mired in sleaze and incompetence, and now humiliated into a forced nationalisation of a lending bank (as opposed to the very intentional nationalisation of Railtrack), and an opposition unable offer anything more than some muted slanging. For heavens' sake, after a decade of increasing taxes, most of which have been poured down the drain, we are now expected to bear the risk for a commercial bank operating in a (we are told) depressed housing market!
Cameron's position in the polls (presently at about 9 points ahead) is extraordinary, because this means that around 30 percent of those polled are still telling the pollsters they support the discredited Labour Government. How can they? Presumably they are die-hards who out of principle will always favour the party, even when they are clearly damaged below the waterline.
But on the other hand, my view is that the reason Cameron is not moving to the 15 – 20 percent lead in the polls which he needs if he is to present a clear future Government, is because nobody knows what he and his party really stand for.
There are two views – one is that oppositions don't win elections, but Governments lose them. In the present circumstances that view is clearly deficient. Labour has a rock-solid minimum level of support below which we can assume it will not fall (the high 20's percent). But without a commanding lead, we are looking at a hung Parliament. In order to win, I believe that the Conservatives have everything to play for, but (and this is the point) they MUST tell the public CLEARLY what they would DO, and they are not doing this in any area at present. All we are seeing is style over content.
In the dark, 'lost' days of the Tory party, orators and intellectuals such as Hague and Redwood were painted as somehow undesirable and 'wierd' by Blair's propoganda machine. This method of warfare unfortunately seems to have shaped the Cameron response, which is to be the opposite. That was the only response the cornered Tory Party could make to Blair, but he went six months ago. We are in different times. A combination of Cameron's public – friendly approach and some genuine intellectual power is badly needed if the Tories are to be an effective opposition, let alone a Party seen as a credible alternative Government.
Thank you Mr Redwood for giving us some basis for optimism.
February 21, 2008
http://haloscan.com/tb/mikedenham/458528539720689…
This makes salutory reading about Northern Rock.
When Alastair Darling says there are high quality assets in Northern Rocks portfolio, does he tell us that in fact the high quality assets are off balance sheets and off shore in the Granite vehicle?
(I have cut out a couple of sentences with accusations about the Chancellor)
The government admits that Granite exists and has good mortgages in it. They also tell us the mortgages not in Granite are good as well.
February 22, 2008
John,
I don't understand.
From you article I gather you, with your business acumen and assuming you had the money, wouldn't enter into this agreement given the paucity of information.
I certainly wouldn't (even if I had the money).
Why then, would MP's vote to enter such a disadvantageous agreement without insisting on disclosure?
Do we still have an elected house of representatives?
If not, why are they still there?
February 22, 2008
JR: "They also tell us the mortgages not in Granite are good as well."
The situation with Northern Rock is this, the government is rushing the nationalization through in a matter of days, after dithering for months.
They have deliberately attempted to restrict information about the true financial situation of Northern rock, and one result, in my opinion, is they have created a false market in shares of Northern Rock.
Northern Rock is known to have been a lender that was prepared to offer over 100% of the value of the property (someone I know has just such a mortguage), in a situation where property prices were continiously going upward that was not a problem. But now the housing market is looking decidedly 'iffy', there is a very good chance that much of Northern Rocks mortguage book is already below the surface.
To support that, Northern Rock is one of the lenders that stars prominently in the repossessions statistics.
I have no problem with Granite, if it is what it purports to be, however in a situation where Northern Rock is about to be thrown up to £100 billion of public funds, we ought to know a little more about what we are buying.
The suspicion is that most of the so called 'high quality' loans, that the Chancellor tells us belong to Northern Rock are actually in Granite, and outside the reach of the Nationalization of Northern Rock. That means the investors in Granite will be serviced from the 'high quality' loan portfolio in Granite before the public funds are repaid.
If the Chancellor knows that but is withholding that information, then that is something Parliament should find out.