Rebirth of England

Although Northron Rock Bank seems to have developed very rapidly in the past two years, by 2007, North Rock Bank was already a big bank, with branches built in various shopping malls all over the UK...

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

So if you acquire this bank now, even though its market value has shrunk to less than $360 million - and the stock price is still falling...

But it needs to bear the British government's debt and interest of up to 25 billion pounds. Is it not worth the gain?

If this were really the case, there would not be so many institutions and consortiums actively competing to acquire Northron Rock Bank.

In itself, as mentioned before, Northrock Bank's losses in the subprime mortgage crisis were not that big. Their main problem was that they loaned out too many mortgages, and the conditions for lending loans at that time were relatively loose. , just like the reason why the subprime mortgage crisis occurred in the United States, due to the rise in interest rates in the UK and the impact of the subprime mortgage crisis, many loans may not be recovered, resulting in a suspension of lending.

This situation will cause Northen Rock Bank's capital flow to dry up - because 75% of the loans they lend themselves come from funds borrowed or loaned from other channels, plus there is a run on depositors. After that, the flow of funds that could have been circulated during the boom was interrupted, which resulted in the current predicament of Northen Rock Bank.

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

Let's put it this way. Originally, Northron Rock Bank's assets were as high as 100 billion pounds, but these assets included liabilities and depositors' funds. Therefore, after excluding these, the market value reflected by the stock price was more than 5 billion pounds.

Now, the market value of Northrock 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 market's lack of confidence in it.

To put it bluntly, the stock price does not 100% truly reflect the true value of a company. It also needs to add to the market’s confidence in it. When the market believes that you can expand 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 increase your market value to 1 million or even 10 million. To put it bluntly, what investors invest in is 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 trampled by selling, and the final market value of the stock price is only 100,000.

Completing the acquisition of Northrock Bank will of course entail up to 25 billion pounds in debt and interest, and it may be difficult to recover many of the mortgages previously issued, but this does not mean that these funds have disappeared.

Because for those who took loans to buy houses, their properties have been mortgaged to banks. Now that loans have been stopped, banks will be able to take back these properties. The only thing that is worrying is the current global economic situation. These properties are temporarily sold. No more than its value at the time of mortgage.

After all, in order to issue more loans, Northen Rock Bank could even issue loans at 100% of the house price at that time, and even as high as 125% for some properties. Therefore, if the loan cannot be recovered, even if the other party has repaid several installments, At the current prices of these properties, there will still be some losses.

But at the same time, Barron also knows that after the subprime mortgage crisis, British real estate will recover quickly, and even increase by a considerable amount.

Therefore, these "bad debts" will at most occupy a large amount of their funds. With the recovery of the housing market, they will still be able to recover and even make a profit. They will not disappear out of thin air.

Seeing this situation, at the beginning, more than a dozen institutions and consortiums participated in the bidding for Northrock Bank.

However, the British government's condition that the £250 loan and interest injected into Northrock Bank be returned within three years made many institutions and consortiums retreat.

After all, with the current situation, who knows when the British real estate market will recover? And now not only is Northrock Bank experiencing a depletion of liquidity, but also affected by the subprime mortgage crisis, many banks are beginning to act cautiously. There is no problem in assuming debt, but it is very difficult to pay it off within three years.

"I fully understand your concerns, sir..."

Barron said to the finance minister in front of him:

"I can guarantee to pay back the 25 billion pounds and interest within three years, but I need to find another way to achieve it..."

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

"This operation... I'm afraid it will be very difficult. At least within the government and the central bank, there will be a lot of opposition."

"But I hope you understand, sir, this is the best solution. In addition, under the current circumstances, no one will be able to accept the condition of paying off 25 billion pounds of debt and interest within three years. As for those who object The voice... Things are often like this. It is easy to object, but it is difficult to do things. If anyone expresses a different opinion, just let him solve the matter, and he will shut up immediately. "

So far, apart from Standard Chartered Bank, among other competitors, the acquisition plan closest to the requirements of the British government is the Virgin Group.

Virgin Group promised to immediately pay 11 billion pounds of the 25 billion pounds owed by Northron Rock Bank to the Bank of England, the Bank of England, after the merger with North Rock Bank is completed, and gradually return all of it within the next five years. Loans owed.

It also stated that it would pay in cash the interest generated by various financing arrangements, including interest generated by loans from the Bank of England.

After acquiring Northron Rock Bank, Virgin Group will inject its currency business assets into North Rock Bank, rename it Virgin Bank, and issue new shares. Virgin Group's current currency business will be valued at 250 million pounds. .

Half of the 11 billion pounds they provided to return to the Bank of England will be provided by the acquisition consortium working with the Virgin Group, and the other half will be raised by issuing new shares to existing shareholders. The new shares will be priced at 25 pence per share and will be carried out by the acquisition consortium. underwriting.

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

In addition to the Virgin Group delaying the repayment of all arrears to the Bank of England until five years later, firstly, since the government has rescued Northron Rock Bank, it will naturally hope that they will no longer be in trouble. Among them, the Virgin Group did not have banking business before, and their currency business can only be regarded as some kind of "intermediary" at best. Therefore, it is not yet known whether they can run Northen Rock Bank well and keep it out of trouble.

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

In addition, Virgin Group is preparing to raise part of the funds through the issuance of new shares. Barron also has reason to suspect that this process will not go as smoothly as they expected. After all, now is the time when the subprime mortgage crisis is intensifying.

Don't look at the stock market, it 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...