Chapter 566: Add Money

The acquisition plan proposed by Barron to Chancellor Darling is very simple - didn't you inject 25 billion pounds of loans into Northern Rock Bank? After the acquisition is completed, DS Group can bear this part of the debt and promise to repay it within three years, and even use the corresponding assets of DS Group as collateral. In this way, with the strong strength of DS Group, it is enough to guarantee the safety of this part of the funds, so that the government can account to taxpayers.

But the premise is that DS Group needs the government to take out at least 25 billion pounds, either in the form of investment or loan, and give it to DS Group for them to invest, so that he can guarantee the repayment of all 50 billion pounds and interest within three years, or even shorter.

Of course, the whole process is very complicated. In simple terms, DS Group will issue a special bond, and its interest will be equivalent to the interest of 25 billion pounds injected by the Bank of England into Northern Rock Bank...

This special bond will be purchased by the government and the central bank, with a total amount of 50 billion pounds, and will be redeemed within 3 years.

In this way, after obtaining the 50 billion pounds of funds, 25 billion pounds of them will be used to return the funds lent to Northern Rock Bank by the Bank of England (the interest will be borne by Standard Chartered Bank), and the other 25 billion pounds will be placed in a custodial account that can be supervised by the Ministry of Finance and the Financial Services Authority, and operated by an investment fund specially established by the DS Group for this purpose, which can also ensure the transparency and security of the use of this part of the funds.

This series of operations will definitely be presented to the public through various legal and reasonable packaging, but the actual core is that the Bank of England or some public funds under the jurisdiction of the Ministry of Finance will invest in the purchase of DS Group’s bonds to inject another 25 billion pounds of funds into it.

In this way, the government’s "debt" has become 50 billion pounds...

But in fact, after the DS Group obtained this fund and completed the acquisition of Northern Rock Bank, the loans they had previously injected into the bank can be repaid immediately, first completing the explanation to the public on this matter, and the government can completely withdraw from Northern Rock Bank.

As for the 50 billion pounds of debt that DS Group has added, which comes from the government...

DS Group itself is one of the largest fund management companies in the UK. This kind of "investment" can still be accepted through some packaging.

Moreover, this amount of money is placed in a special custodial account supervised by the government, which is also very reassuring.

The difficulty here is whether the relevant funds of DS Group can use the remaining 25 billion pounds to earn 50 billion pounds within three years... and also include some interest?

This requires a return rate of more than 100% in just three years, and it is still such a huge amount of 25 billion pounds. Considering the global economy is not optimistic in the future, I am afraid that no one will have such great confidence.

Except Barron.

Yes, this is not difficult in Barron's view, at least not as difficult as many people imagine.

Because in fact, he only needs to get a return of about 30% in three years...

Why?

Because the current exchange rate of the pound to the dollar has reached more than 2, and by the beginning of November, it will reach the highest point of 2.1163 in three years... or even in the next decade.

But in November 2009, two years later, the exchange rate of the pound to the dollar will fall to 1.35...

Even if Barron does nothing, converts pounds into dollars next month, and then converts those dollars into pounds two years later, the result is...

The current 25 billion pounds will become more than 40 billion pounds!

Therefore, all Barron needs to consider is how to turn 40 billion pounds into 50 billion pounds, a 25% increase.

However, considering that the exchange rate cannot be completely in such an ideal state during the two conversions, and additional interest is required, it is enough to achieve a 30% return rate.

A 30% return rate in three years, an average annual return rate of less than 10%, is not difficult even if the amount of funds exceeds 50 billion US dollars.

But for Darling, what he needs to consider is how to conduct such fund operations in compliance with the law. After all, the government has already injected 25 billion pounds into Northern Rock Bank, which can be done for the reason of preventing the spread of panic and maintaining financial order.

But the additional 50 billion pounds injected into DS Group (in fact, half of it will be returned to the central bank in the form of repayment by Northern Rock Bank) needs to be able to withstand scrutiny.

"I know that you can eventually choose to nationalize Northern Rock Bank and turn it into a state-owned bank, sir..."

Seeing Darling lost in thought, Barron said at the right time:

"But there are risks, because Northern Rock Bank itself has caused a large number of non-performing assets, and the disposal of these non-performing assets is also a risk that needs to be faced after nationalization..."

"And after you have reorganized this bank, you will privatize it again. The most optimistic prediction is three years later or four or five years later? At that time, many of the current decisions still need to be made, and without the option of nationalization, will it be better than now?"

The hidden meaning in Barron's words is that there will be a general election in three years. If this matter cannot be perfectly resolved before then, then even if nationalizing Northern Rock Bank can benefit the government more, it is likely to have nothing to do with the Brown government, and it is also unlikely to be Darling's achievement...

And if nationalization can really solve the problem so well, why did Britain choose to privatize so many state-owned assets in the first place?

In the eyes of these people, privatization can make operations more dynamic... Nationalizing Northern Rock Bank is just their final helpless choice.

"I can't give you a definite answer now, Your Highness, but I can guarantee that we will carefully consider the plan you proposed today..."

Barron was not surprised by Darling's final answer.

After all, it is not the final time they gave yet, and they still have time to review the proposals submitted by other bidders.

These institutions and consortiums will negotiate with the board of directors of Northern Rock Bank on the acquisition, and complete the acquisition plan, which will be reviewed by the Treasury, the Bank of England, and the Financial Services Authority.

They gave a deadline at this time - by the end of October, if there is no acquisition plan that satisfies them, then the government will eventually consider nationalizing Northern Rock Bank...