Everybody happy, if possible

The Virgin consortium was selected as the preferred bidder after an intense weekend of talks with Northern Rock´s board directors and the tripartite authorities.

Sorting out The Rock mess is not being a very easy task for both the company board and the authorities as the solution must satisfy six tough conditions:

1. To get the taxpayer out without losing money.
2. To mantain the financial stability.
3. To protect depositors.
4. To satisfy shareholders interest.
5. To protect jobs in the bank.
6. And to meet EU rules designed to prevent governments distorting competition across Europe.

The Virgin bid appears to have the opportunity to meet the six requirements, because it is understood its offer consists on an immediately repayment of 11 bn pounds to the Bank of England. Furthermore, Richard Brandson will inject some of his own money into the bank. And deposits in Northern Rock are still guaranteed by the government.

However, Northern Rock shareholders may be a tougher group to satisfy, as they consider bidders´proposals not enough. In fact, the largest shareholder raised its stake in a sign of its determination to block Sir Richard Branson´s takeover of the "Blackbird" on Tuesday. The problem is that they are afraid of being left with a massively diluted stake in the bank if the Virgin´s proposal goes ahead.

In conclusion, although Virgin offer is the favourite one right now rival bidders could press their proposals offering better conditions than Richard Brandson´s one.

It was likely to happened

Norhern Rock´s two largest shareholders have asked the board for holding an extraordinary meeting in order to talk about the currently bank´s situation and to be considerated before making a definitive decision about Newcastle lender´s sale.


On one hand, there is SRM Global, which is the hedge fund run by former UBS trader Jon Wood. It now holds 6.44 pct stake in the bank as it raised it 0.27% on tuesday. The other big shareholder is RAB Capital, another hedge fund, own 6.56% of the bank which makes a total of 13%. together.


They have expressed their displeasure about the goverment behaviour, as they feel that the board have almost ceased to consider shareholders as an important constituency. But does they have any power actually?http://financialmediaandcomms.blogspot.com/


On the other hand, UKSA is supporting their EGM requisition as it made an annoucement yesterday, telling they think it is important that shareholders have a say in the outcome of what happens to their company and the assets of the business.http://www.uksa.org.uk/UKSA_Press050_Northern_Rock_EGM_Requisition.pdf


To sum up, their main goal is protecting their interest against a cheap sell-off of the bank´s assets to save Government blushes with speedy conclusion to the crisis, as the deadline of Bank of England´s loan to support Northern Rock is on February 2008. However, the bank share price at record lows seem unlikely to make a profit, in other words, they will try to loss as less as possible.

"We´re open"

Despite stricken mortgage lender Northern Rock may see the value of its equity wiped out and is expected to owe the Bank of England for years to come, the bank goes on trying to recover customers´confidence in order to have their funds reinvested in the company.http://www.northernrock.co.uk/



A briefing memorandum prepared for prospective buyers of the bank by its advisers has just appeared. The most likely options may suggest that shareholder value will be disappeared and that the bank will have to rely on funding from the Bank of England until 2010. http://www.ft.com/cms/s/0/bdc07a86-91d9-11dc-8981-0000779fd2ac.html



On the other hand another possible bidder for the bank appeared last weekend. The potential buyer in question is Luqman Arnold, the former UBS executive and chief executive of Abbey. Mr Arnold is proposing to help the bank through his investment group Olivant Advisers. http://www.olivant.com/press-releases/



To sum up, the "Blackbird´s" future is still a big mystery in the financial market, something which may not help its shares price performance in the short term.

In the last year and a half the value of the Shangai stock exchange increased by 235%. The stock markt frenzy has spread all along China´s coast, where the country´s most industrialized area is. It is not unusual for university students to gamble on stocks the money they have to cover room and board expenses as well as school fees. Furthermore many securities analysts and investors consider a good investment as official statistics suggest strong groth in the chinese consumer market. http://www.atimes.com/atimes/China_Business/II19Cb01.html

In fact PetroChina Company Limited became the world´s largest listed company last week. http://shuangfinance.blogspot.com/2007/11/petrochinas-value-tops-1-trillion.html

On the other hand, some investors believe China´s market is displaying many of the classic warning sings of a bubble. They think there is a frenetic speculation in Shangai which is likely to end in tears if the government does not do something soon and effectively. http://news.bbc.co.uk/1/hi/business/7068116.stm

"Enron of Spain"

14th May 2007, a year after the collapse of the stamp trading companies, Afinsa and Forúm, uncertainty remains for those who fear the loss of the investments. Some 460,000 people have lost money, some of them their life savings in the collapse, and experts say the chance of them getting any sizeable percentage of their money back is small. It comes as the Prosecuting Office has announced that they think the financial black hole in the two companies is even larger than previously thought – at more than €.4.7 billion. .

There were related plenty of disconsolate personal stories http://news.independent.co.uk/europe/article364617.ece
As Afinsa and Forum Filatelico are not strictly financial companies, they are not covered by Spanish Goverment guarantees .
The question everybothy ask theirself is, how could two societies like Afinsa and Forum set up a swindle that last 25 years without any authority taking notice of it?

On the other hand, the return rate in pensions' plans was in some case between 14 and 16%, when the normal rater in other ones were 7'22%. And one of the financial principle is the higher return the more risk it is attached. Moreover, investigators reckon some of the stamps were overvalued by up to 900%, this means almoust nobody checked if their stamps' value was correct. In fact, Spain's consumer groups said they had long warned investors against giving money to the firms.

More than one year later swindle's victims keep fighting for recover their money.http://www.afectadosfilatelia.org/

Worries in Mortgage Industry

The global credit squezze is making both lenders and brokers be worried about market´s future, therefore appetite for new mortgage lending is being reduced.



Ray Boulger, technical director at mortgage brokers Charcol, says that the new business market has been about 20% down in September and October.



One of the consequence is going to be job losses. Many mortgage lenders are announcing they would reduce its workforce by cutting posts. "Bank of America to cut 3000 Jobs After Trading Loss" was one of Bloomberg´s breaking news today.http://www.bloomberg.com/apps/news?pid=20601087&sid=aZ7Eg4rVeGJ4&refer=home



There is uncertainty too for the 6500 staff employed at Northern Rock. It is unlikely that any potential owner will want to write the same volume of mortgage lending in the future.



On the other hand, falling house prices is another worry added. In fact, house prices are falling for first time in two years, according to the Royal Institution of Chartered Surveyors.http://www.thisismoney.co.uk/mortgages/house-prices/article.html?in_article_id=424291&in_page_id=57



It is likely the economy will suffer a dramatically slow consumer spending as a concequence and this could be the start of a recession.

Re-instating its position

The latest bidder reported to making a move on Northern Rock is Virgin Group. This airline, media and gyms group is one of the world's most recognised and respected brands. Furthermore, a recent independent research study has shown that UK public vote Virgin as their most admired brand. http://www.virgin.com/AboutVirgin/WhatWeAreAbout/WhatWeAreAbout.aspx

This fact could be decisive to repair its franchise and to recover the confidence of its shareholders. Moreover, Northern Rock shares closed up 5'9 percent at 273'25 pence on the London Stock Exchange following Virgin's announcement.

On the other hand, the bank's chairman Matt Ridley has stepped down. Ridley told the Treasury Select Committe on Tuesday, that the bank had been hit by "wholly unexpected" events and he defended the way he and his colleagues had been running the bank. http://news.bbc.co.uk/1/hi/business/7052828.stm

It is said that Bryan Sanderson would take over as chairman of the bank as soon as he has been approved by the Financial Service Authority.

Will be Spain after Northern Rock?

Spanish officials have denied reports that the country's property market is heading of a crash and that its financial institutions had required emergency liquidity along the lines of Northern Rock.

The Bank of Spain Governor Miguel Angel Ordonez said that the current market turbulence has increased uncertainty in Spain, as everywhere else. He asked for more transparency in the market, " The biggest favour banks can do is to come clean on losses" http://www.forbes.com/feeds/ap/2007/09/18/ap4129672.html. However, it is known that this is difficult to achieve.

On the other hand, Spanish banks' shares have fallen almost 40 pc since April, as the credit crunch is changing the picture for Spanish lenders. It is expected the turmoil to affect big Spanish companies which want to borrow money to finance their expansion. Furthermore, an economist at the Instituto the Empresas business school in Madrid estimates haf a million families will have trouble paying their mortgages if euro interest rates, which have double in two years, rich much further.

To sum up, banks will all be affected by a drop in confidence, which is really damaging for the market.

Northern Rock too risky

While it is especulating about possible bidders for buying the bank, stockbrokers are advising shareholders to sell their shares ahead of a bid, as the stock is too risky for any investor who is not prepared for large losses.

Although last week Northern Rock share's value was buoyed by speculation that a bidder would emerge, stockbrokers warn there could be further falls.

Furthermore, many financial experts agree that there could still be very negative news for shareholders, because the situation is changing on a daily basis and analysts are having some difficulties to value the company. The main problem is that there is no guarantee that the company will even be bought at market price and this would be terrible for shareholders.

The last new about Northern Rock's bid is that Citigroup is ready to provide more than £5 billion in financing to ease the way for a takeover of the bank. Citigroup is a mayor American financial services company based in New York City http://www.citigroup.com/. The final terms of the deal are still being negotiated. This fund would be very important for Northern Rock, as the Bank of England can not provide liquidity to it for ever.

Who knows Northern Rock' s course?

The most probable Northern Rock's future is being bought by a large bank or any other bidder who could afford bank's financial situation.

Private equity firms in the US and UK are known to be circling Northern Rock. The american JC Flowers seems to be one of the bidders. Mr Flowers is one of the richest americans according to The Forbes 400 http://forbes.com/lists/2006. The Sunday Telegraph reported yesterday he may join the Cerberus Capital Management LP and Citadel Investment Group LLC hedge funds to split up Northern Rock.

While rumors of possible contenders are at every press, the UK's fifth-biggest mortgage lender tries to calm its customers with the message "Your funds are safe with Northern Rock" http://www.northernrock.co.uk/. The reason is that about £1 billion was withdrawn by panicking customers on Friday. As a concenquence the company's shares suffered a big decrease in their value on the market.

The Sunday Telegraph's photo

To sum up, if no bidder appears during the next few weeks the bank may be force to consider separating sales of its mortgage book.

The Crash of´29

The Crash of 1929 was one of the most devastating stock market crashes in American history. It consists of Black Thursday, the initial crash and Black Tuesday, the crash that caused general panic five days later.

While no consensus exits about its exact causes, it argues that one of the principle causes was the attempt by politicians and the media to stop markets speculators. The probable second reason was the great expansion of investment trusts and public utility holding companies. The convential view was that stock prices were too high.

The Wall Street Crash had a tremendous impact on the whole population, because the dramatical prices fall made it very difficult for entrepreneurs to find the necessary money to go on running companies. This problem made more than 100000 american companies close and consequently a lot of workers became unemployed and at that moment there was no national system of unemployment benefit. The final consequense was that the american purchase power fell dramatically.

This crash helped bring on the drepression of the thirties which was a terrible period of crisis in the whole world. The depression also helped to extend the period of low stock prices, because of that it took to the Wall Street bourse 22 years to reach the same level it achieved in 1929.