In the end, they may have to auction what’s left of Northern Rock on eBay
When the nationalisation of Northern Rock was announced at the beginning of the week, commentators queued up behind the shadow chancellor to declare a return to the dark days of the 1970s and to dance on the ashes of Alistair Darling’s career. It took a little longer for us all to work out what a horrendous task faces the new management duo of Ron Sandler and his chief financial officer, who rejoices in the name of Ann Godbehere. Let’s hope He is, because they’re going to need a miracle to rebuild a profitable business out of the ruins of the Rock and sell it back to the private sector by the government’s real deadline, which we may assume falls a couple of months before 3 June 2010, when Gordon Brown has no choice but to come out of his bunker and face the electorate.
Sandler’s team have two years of hell ahead of them. Every job cut — and there may be 3,000, half the total Rock workforce — will make a hostile headline. Shareholders, demanding £4 a share or better but likely to get less than £1, will have days in court almost as newsworthy as Mohamed Al Fayed’s — and apart from the opportunist hedge-fund investors who will attract little sympathy, there are 144,000 small, loyal and mostly elderly shareholders who will attract a great deal of it. Meanwhile, high-street competitors will howl at the Rock if it offers top-of-the-range deposit rates, because logic says a state-owned bank should be offering no more than National Savings rates, and to do otherwise constitutes unfair competition. But if the Rock cannot offer attractive rates in order to raise the proportion of retail deposits on the liability side of its balance sheet — and thereby rely less on wholesale money market funding — it can never regain its lost stability.
As for the asset side of the balance sheet, ministers have repeatedly said that the Rock’s mortgage book is sound. But in fact it has the highest loan-to-value ratio of any major lender in the sector, meaning the lowest margin of bricks-and-mortar security. In the last few months of its breakneck expansion, it was shovelling out new loans on a formula of up to 125 per cent of the value of the homes offered as security. It also has more than £6 billion of loans in the deeply troubled buy-to-let sector; and it is already a market leader in repossessions. Combine all that with falling house prices — falling most sharply in areas where boom-time mortgage-lending was most aggressive — and there is scant hope that the Rock will look stronger as a lending business in two years’ time than it does today. It may look substantially weaker — and Sandler’s only real hope is that he will also have made it substantially smaller, to the point at which a credible private-sector buyer is prepared to take what’s left of it off the Treasury’s hands at a discount which crystallises the taxpayers’ losses. Darling can console himself with the thought that he surely won’t still be Chancellor when that happens; even on a salary of £90,000 a month, it’s Sandler I feel sorry for.
It was back in April 2000, when he was Archbishop of Wales before being translated to Canterbury, that I first started to worry about Dr Rowan Williams. I formed the view that his combination of benign unworldliness and roving intellect would one day lead him into trouble when I read an article he had written in the Guardian criticising Barclays for closing branches in the Welsh valleys. In it he referred to a ‘utopian’ world in which governments would regularly intervene ‘to make banks behave’ — that is, to make them keep unprofitable branches open and put the convenience of small customers ahead of the legitimate profit-interest of shareholders. Plenty of small Welsh customers agreed with him at the time, but like his recent intervention on sharia law he seemed to be allowing himself free intellectual rein in territory where he could all too easily look out of touch with the real world. No one has yet asked Dr Williams what he thinks about slapping taxes on non-doms, but I think we can guess: if you’re a foreign resident who finds our British tax laws culturally offensive, feel free to abide by your own tax laws — or by logical extension, no tax laws at all.
I’ve just had my first experience of ‘speed networking’ — at the opening of a smart new club, One Alfred Place, off Tottenham Court Road — and it was so exciting that I had to go and lie down afterwards. The idea is to introduce yourself to a total stranger and discuss business ideas, intensely, for just three minutes until a whistle blows — when you move on to the next stranger and do the same again. By this mechanism I met a succession of eager entrepreneurs half my age, all of whom spoke in a vocabulary that was quite unfamiliar to me: when the organiser, Oli Barrett, asked ‘Who turned the wiki pink?’, I was guessing this must be some coded reference to drugs — but he was actually talking about the ‘pre-event wiki’, a kind of free-form website to which we had all been invited to contribute.
As far as I could understand them, most of the entrepreneurs were trying to develop internet-based networking engines intended to make a fortune for their inventors while also doing something useful for the world. ‘It’s like Monster meets Facebook for Generation Y,’ enthused the founder of something called www.bravenewenterprises.com; ‘We’re, like, using wikinomics to engage with marginalised young people,’ said a woman whose card I failed to collect before the whistle blew; ‘Do come and have lunch at the Willingdon Club in Mumbai,’ said a charming Indian who must have wandered into the wrong event.
I’m sure the wiki enthusiasts are on to something powerful if only they can harness it, but sometimes the best money-making ideas are the simplest, like this one from the delightful Jasmine Birtles of moneymagpie.com. Every Tuesday morning, she explained in our breathless three-minute encounter, unclaimed lost luggage from British Airways is sold off at Greasby’s auction house in Tooting. There, at rock-bottom prices, you can buy jewellery, ski equipment and suitcases full of underwear, sight unseen — and re-sell them, at a handsome profit if you’re lucky, on eBay. Perhaps, in the end, Alistair Darling’s successor will have to do that with the unwanted baggage of Northern Rock.