Northern Rock's bailout from the Bank of England is now over £20bn, and climbing. Given that the interest rate on the loans is around 7% and that most Northern Rock mortgages are for less than this amount, this means that the Northern Rock loan book is growing increasingly unprofitable. Worse still, the haemorrhage of market funds from the Rock is likely to continue as commercial loans have to be repaid and no more are to be had. So, what we have is a bank with rapidly decreasing profitability and little in the way of assets: few branches, unexceptional computer systems and a toxic brand. Two questions immediately spring to mind; why on earth are their shares still trading and what is in it for the two or three prospective buyers? There is no good answer to the first. It is impossible to accurately value Northern Rock shares and they should be suspended to stop the uninformed or downright foolish from investing further. The second question is more interesting; all of the buyers want some level of government support and the most likely scenario is that the various players are looking to a time when the capital markets will start to operate again and then the long term value of the Rock's generally high-quality mortgage book can be realised.
There is also the small matter of sorting out the regulatory shambles that led to this situation. Someone needs to get a grip there.
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