大象传媒

Goldman's Rock Gambit

• Robert Peston
• 10 Jan 08, 08:48 AM

Northern Rock was laid low in September by its excessive dependence on wholesale money markets, especially the securitised mortgage market, for the financing of its lending.

So it is either apt or appalling 鈥� depending on your bent 鈥� that Goldman Sach鈥檚 solution to the Rock鈥檚 current plight would be to securitise the taxpayers鈥� emergency loans to the Rock.

The 拢26bn odd that has been lent to the Rock by all of us would be repackaged into bonds, for sale over time to investors.

But in order to make them sellable, these new Rock bonds would need a triple-A credit rating.

And that would require them to be guaranteed 鈥� or 鈥渨rapped鈥�, to use the jargon 鈥� by the government.

In other words they would be the equivalent of gilt-edged stock.

鈥淲hat on earth鈥檚 the point of all that?鈥� you might well ask. 鈥淪urely they would remain a public-sector risk. We would all still be on the hook to the Rock鈥檚 plight, as exposed as we ever were.鈥�

And you would be right.

What鈥檚 more, the Eurocrats in Brussels would doubtless see such a deal as state aid, and therefore illegal.

So this deal will only fly if Goldman can find some other 鈥渨rap artists鈥� (ha ha).

It needs to persuade financial institutions called reinsurers to take over some or all of the Government guarantee.

In theory this is do-able.

Reinsurers 鈥� such as the one run by , the world鈥檚 most successful investor 鈥� still have immensely deep pockets, even after the credit crunch.

But they would charge for taking on the Rock risk from the government, for providing the cherished triple-A rating.

And the big questions, which Goldman has not yet answered, is whether the re-insurers can do this at a price that isn鈥檛 excessive and in a way that placates the Eurocrats.

To be clear, this is not some intellectually fascinating bit of obstruse financial engineering.

Goldman鈥檚 success or failure in securitising this debt will decide the very future of the Rock.

If the securitisation can be done on sensible terms, it means that a rescue deal with the consortium led by or with (or, as a very long shot, the Gooding/ group) may yet happen.

Virgin 鈥� which yesterday gave an update to the Rock鈥檚 board 鈥� remains remarkably bullish about its prospects.

Which is a bit odd, since the big shareholders in the Rock tell me they are profoundly uninterested in what Virgin has to offer 鈥� and those shareholders have the power of veto (much to the chagrin of the Treasury).

The other generic option is partial nationalisation.

Full nationalisation seems to have been more-or-less ruled out.

Instead the Treasury鈥檚 fallback plan would effectively be the status quo, except that new senior management would be parachuted into the Rock and the Treasury would take a minority stake in the business (possibly via a warrant or share-option arrangement).

A lot of preparation has been made for this partial nationalisation. A senior banker has been lined up as a possible new chief executive.

For the Treasury, it鈥檚 an insurance policy 鈥� since a private-sector rescue may turn out to be impossible.

And it鈥檚 a realistic option, because retail depositors have at last stopped withdrawing their funds from the Rock: retail deposits have stabilised at something over 拢9bn, which reinvents Northern Rock as a small-to-medium bank.

Many taxpayers may take the view that a partial nationalisation would make the best of a bad job.

What I mean by that is that we鈥檙e all exposed to the Rock to the magnificent tune of 拢57bn through direct loans and guarantees for other lenders.

Under none of the available options 鈥� those proposed by Virgin, Olivant, or the Gooding/Five Mile group 鈥� would this taxpayer support fall to some minimal level in the coming weeks and months.

Taxpayers would continue to prop up the Rock for a considerable period.

The big point is that if there is a profitable future for the Rock, it would only exist because we as taxpayers prevented the Rock from collapsing.

But 鈥� at the moment 鈥� there is no proper reward for taxpayers for all this succour.

And the one benefit of a partial nationalisation is that it would give to the government and taxpayers a slice of any future capital gains generated if the Rock were to become a thriving going concern again one day.

There is therefore an argument that a tweaked, semi-nationalised version of the status quo 鈥� which would endure only till markets recovered sufficiently to permit a full privatisation 鈥� is the best of the lousy options available to the Rock and the Treasury.

• Permalink
• Comments