Government support given to Northern Rock financial essay
Northern Rock's dividend decision came after pressure from regulators and MPs to drop the $59 million payout it announced before it was hit by the financial crisis. The move was welcomed. First, Mr. Flowers would need to recruit a group of investors with large balance sheets to solve Northern Rock's short-term (30 billion) and long-term (70 billion) financing problems. Northern Rock, a mid-sized bank specializing in residential mortgages, was hit by the first substantial wave of private savers in Britain in a century. It had previously pursued a policy of rapid growth, financing itself largely by borrowing on wholesale markets and through securitization. Remember how Northern Rock proved that being overly dependent on immediate short-term financing wasn't necessarily a good idea. Remember this graph from the financing model: so noticeably dependent on sub-3. Sir Richard Branson's Virgin group emerged as the preferred bidder for Northern Rock on Sunday evening, the FT reports, after winning favor with both the government and the bank itself. The Virgin. Although it ultimately faced several obstacles during implementation, the decision to bail out Northern Rock would prove to be the best option available by addressing the systemic dependence on the wholesale market, addressing the spillover effects of the run on Northern Rock and by expediently tackling the legal barriers presented by the bank's latest forecast figures underlying pre-tax profits of between 500 million and 540 million, a significant reduction from analysts' consensus forecast of 647 million. Mervyn King, governor of the Bank of England, defended his role in the Northern Rock crisis before a committee of MPs on Thursday, saying he had secretly wanted to act as lender of last resort. But there is a problem. In its latest interim report - published covering the first half of the year - Northern Rock boasted of compliance with the latest Basel rules and even. A third of the 747 million cash price paid by Sir Richard Branson's Virgin Money to buy Northern Rock will be financed from the state-owned bank's current capital base, the Financial Times reports. Sandy Chen, financial analyst at Panmure Gordon, recommends selling: given the uncertainty, the takeover price could be somewhere in the range of p and 4, he said. Collins Stewart has also echoed this. The Treasury has announced that the percentage guarantee on retail deposits at Northern Rock plc will be lifted in three months from the close of business. Lifting the guarantee paves the way for the government to sell Northern Rock so it can regain independent status.