Wednesday, 16 January 2008

Northern Rock & the Telegraph

Yesterday's Northern Rock EGM provided a bit of corporate theatre, as two hedge funds had filed a number of shareholder resolutions. They also used the opportunity to lay into who they thought was to blame for the NR crisis... the Bank of England. According to the Telegraph:

Mr Wood called for Mr King not to be reappointed for a second term, a decision on which is expected in the next few weeks.

He said: "It was his faul... when Northern Rock went to borrow from the lender of last resort facility, they were told: 'No, you can't'. They forced Northern Rock to be shamed and publicly named, and of course, people wanted to take their money out."

"On one day alone recently, €500bn (£377bn) was borrowed from the European Central Bank by over 400 banks. So why should Northern Rock suffer? All Mervyn King had to do was what everyone else did."

Philip Richards, though resisting any personal attacks on Mr King, added: "To say there is a moral case for nationalisation is perverse after it was borne out of a mishandling of the crisis by the Bank of England."

I actually think this is a bit of blather. The hedge funds took a punt and got it wrong. With the threat of nationalisation looming and no idea what price the shares might be acquired for they can't afford to wind the Government up by blaming Darling etc, hence the BoE makes an alternative target.

Actually the Telegraph business comment nails this one quite fairly -

That is what risk capital is all about. Investors in Northern Rock backed a company with a flawed business model. It was a gamble that didn't pay off, just as the hedge funds' later punt has not.

That doesn't stop my personal favourite columnist Jeff Randall from blundering in. Today he says that CSFB analyst Jonathan Pierce was one Cityboy who spotted that the Rock was a crock -

All last year, CSFB was urging clients to sell the Rock's shares. As the price went down and down, Pierce simply reiterated his negative stance. He is one of only a few to emerge from this fiasco with an enhanced rating.

Get that - one of only a few to spot the problem before it happened. I wholeheartedly agree that most missed it, it's just that a previous column in the Telegraph business section last November suggested that City did all it could in respect of NR to signal there was a problem, and had been doing so from the start of 2007. (Although strangely voting at NR's AGM in April suggested that the City was giving the bank the thumbs up).

At the start of the year, the stock market began signalling that the company was in trouble: from a peak of £12.50, its share price halved and then halved again. Short of setting off an air-raid siren, it's hard to see what more the City could have done.

No prizes for guessing the author.

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