A colleague of mine was worried that I have been too hard on Northern Rock. He is not a banker, but there is a dawning realisation outside of the trade just how bad this situation has become, and a fair amount of denial if some of the comments on this blog are to be believed. Not only is Northern Rock in crisis, it is getting worse by the day as more deposits drain out and more loans fall due for repayment without further loans to repay them. Without treasury support then this would be an ex-bank, with its shares valueless. At the moment there isn't a realistic rescue plan, and the Virgin bid has many unanswered questions, like the fact that loan funding other institutions has not been arranged, that Virgin is putting only a few hundred million of its own assets into the deal, that most of the other cash comes from existing shareholders and the hopelessly optimistic business plan assumes that the saved bank can capture 25% of the UK banking deposit business going forward from 2008.
Unless a new source of capital can be found then the only alternatives are administration of nationalisation, either option a progressive disposal of assets and a dismantling of the business. It is a mess caused by a Labour government who would not overrule the Bank of England to provide liquidity to the markets and then overruled the Bank of England to provide support to Northern Rock when it couldn't find funding on the capital markets. Either the market should have been supported or Northern Rock allowed to go bust. As it was policy stumbled from one strategy to another and so predictably failed. It's a bit of a cliché, but I wouldn't trust this lot to run a whelk stall.
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