Chapter 565: Another Way

Although Northern Rock Bank seems to have developed rapidly in the past two years, by 2007, it had become a large bank with branches built in shopping malls all over the UK...

But when its market value was the highest in February this year, it was only 5.2 billion pounds, and its scale was not huge - its scale was only about one twentieth of Barclays Bank.

So now, if we acquire this bank, even if its market value has shrunk to less than 360 million US dollars - and its stock price is still falling...

But it needs to bear the British government's debt and interest of up to 25 billion pounds. Isn't it worth the loss?

If this is really the case, there won't be so many institutions and consortiums competing so actively to acquire Northern Rock Bank.

In itself, as mentioned before, Northern Rock Bank's losses in the subprime mortgage crisis were not that great. Their main problem was that they lent too many mortgages, and the conditions for lending were relatively loose at the time, just like the reason for the subprime mortgage crisis in the United States. Because of the rising interest rates in Britain and the impact of the subprime mortgage crisis, many loans may not be recovered, resulting in loan suspension.

This situation will cause the capital flow of Northern Rock Bank to dry up - because 75% of the funds they lend out come from funds borrowed or loaned from other channels, and after the depositor run, the capital flow that could circulate during the prosperous period was interrupted, which caused the current predicament of Northern Rock Bank.

The funds injected by the British government into Northern Rock Bank through the Bank of England did not disappear, but filled the withdrawals of their depositors and the funds previously obtained through other channels that needed to be urgently returned...

Let's put it this way, Northern Rock Bank's assets originally reached 100 billion pounds, but these assets included liabilities and depositors' funds, so after deducting these, the market value reflected by the stock price was more than 5 billion pounds.

Now, the market value of Northern Rock Bank is only 360 million pounds, due to the losses they caused, the reduction of depositors, the increase in debt and interest, and more importantly, the lack of confidence in the market.

To put it bluntly, the stock price cannot fully reflect the true value of a company. It is more about the market's confidence in it. When the market believes that you can achieve greater development or significantly increase revenue in the future, even if your current assets are only 100,000, it can push up the stock price and make your market value rise to 1 million or even 10 million. To put it bluntly, investors invest in the future.

On the contrary, when the market loses confidence in you and is not optimistic about you, even if you have 1 million real assets, it may be sold off and the final market value shown by the stock price is only 100,000.

The completion of the acquisition of Northern Rock Bank will certainly incur up to 25 billion pounds in debt and interest, and many of the mortgages issued before may be difficult to recover, but it does not mean that these issued funds have disappeared.

Because those who have borrowed money to buy houses have already mortgaged their properties to the bank. Since the loan has been stopped, the bank can recover these properties-the only thing that is worrying is the current global economic situation. These properties cannot be sold at the value when they were mortgaged for the time being.

After all, in order to issue more loans, the Northern Rock Bank was even able to issue loans at a rate of 100% of the house price at the time, and even up to 125% for some properties. Therefore, if the loan could not be recovered, even if the other party had paid back several installments, it would still cause some losses at the current prices of these properties.

But at the same time, Barron also knew that after the subprime mortgage crisis, British real estate would recover quickly, and even have a considerable increase.

Therefore, these "bad debts" would at most occupy a large amount of their funds. With the recovery of the housing market, they would still be untied and even profitable, and they would not disappear out of thin air.

It was also because of this situation that more than a dozen institutions and consortiums participated in the bidding for the Northern Rock Bank at the beginning.

However, the British government's condition that the 250 pounds of loans and interest they injected into the Northern Rock Bank should be repaid within 3 years made many institutions and consortiums back off.

After all, under the current situation, who knows when the British real estate market will recover? Moreover, not only is the liquidity of Northern Rock Bank drying up, but also affected by the subprime mortgage crisis, many banks have begun to act cautiously. It is no problem to bear the debt, but it is very difficult to pay it off within three years.

"I understand your concerns very well, sir..."

Barron said to the Chancellor of the Exchequer in front of him:

"I can guarantee to pay off the 25 billion pounds and interest within three years, but it needs to be achieved in another way..."

Darling frowned slightly when he heard the plan Barron told him, shook his head and said:

"I am afraid that it will be very difficult to operate this way. At least there will be many voices of opposition within the government and the central bank."

"But I hope you understand, sir, this is already the best solution. Besides, under the current circumstances, no one will be able to accept the condition of paying off the 25 billion pounds of debt and interest within three years. As for those voices of opposition... things are often like this. It is easy to oppose, but it is difficult to do things. If anyone expresses a different opinion, let him go and solve this matter, and then he will shut up immediately." So far, among other competitors, except Standard Chartered Bank, the acquisition plan closest to the British government's requirements is Virgin Group. Virgin Group promised that after the acquisition of Northern Rock Bank is completed, it will immediately pay 11 billion pounds of the 25 billion pounds owed by Northern Rock Bank to the Bank of England, the Bank of England, and gradually repay all the loans owed within the next five years. It also stated that it will pay the interest generated by various financing arrangements in cash, including the interest generated by loans from the Bank of England. After acquiring Northern Rock Bank, Virgin Group will inject its currency business assets into Northern Rock Bank, rename it Virgin Bank, and issue new shares. Virgin Group's current currency business will be valued at 250 million pounds.

They provided 11 billion pounds to return to the Bank of England, half of which will be provided by the acquisition consortium cooperating with Virgin Group, and the other half will be raised by issuing new shares to existing shareholders. The new shares are priced at 25 pence per share and will be underwritten by the acquisition consortium.

However, Barron also pointed out to Darling the shortcomings of Virgin Group's acquisition plan compared with theirs.

In addition to Virgin Group delaying the repayment of all debts owed to the Bank of England to five years later, firstly, since the government has rescued Northern Rock Bank, it will naturally hope that they will not get into trouble again in the future. Virgin Group did not have banking business before, and their currency business can only be regarded as a kind of "intermediary" at best. Therefore, it is still unknown whether they can run Northern Rock Bank well and keep it away from trouble.

But Standard Chartered Bank is different. It is an old bank with sufficient history and experience. It has perfect systems in all areas covered by the bank. After completing the acquisition of Northern Rock Bank, Standard Chartered Bank will turn it into their branch in the UK, thereby expanding its business to the UK. With the reputation of Standard Chartered Bank, it will naturally regain the trust of depositors and the market, allowing Northern Rock Bank to safely survive the previous turmoil.

In addition, Virgin Group is preparing to raise part of the funds by issuing new shares. Barron also has reason to suspect that in this process, it will not be as smooth as they expected. After all, this is the time when the subprime mortgage crisis is getting worse.

Don’t look at the stock market, which seems to be still prosperous, but choosing to issue new shares at this time is definitely not a good idea. I’m afraid they will regret it then...