Saturday, 22 November 2008

Between a Northern Rock and a Granite hard place

In February I wrote about the importance of Granite to Northern Rock and why Alistair Darling was a hypocrite. It seems that Granite has been set free by Northern Rock as vertian trigger points have been breached. The FT writes:
"Analysts were surprised by the Granite move because the bank's management had said as recently as last month that the trust would not be cut loose. Mr Pahlson-Moller said that in response to a question in a teleconference on October 14, Ann Godbehere, Northern Rock chief financial officer, said Granite would not be wound down.

In April, Ron Sandler, executive chairman, said the bank would continue to write enough mortgages to support the Granite programme.

However, Northern Rock has now decided that it would not be in the interest of taxpayers to support the vehicle with new mortgages. The bank is trying to shrink its balance sheet and pay back a multi-billion pound government loan as quickly as possible.

Some Granite bondholders could face hundreds of millions of pounds in losses and not see their bonds mature for up to 20 years, while analysts said there was a definite risk to the taxpayer of losses on the bank's £3.3bn share of mortgages in Granite."

The FT also reports that
"Deutsche Bank said yesterday that the next trust most likely to suffer the same fate as Granite was Aire Valley, owned by Bradford & Bingley.

"We see greater risks that other bank sponsors will become more inclined to manage unwinds of their trusts as the securitisation funding channel becomes increasingly de-emphasised," said Ivan Pahlson-Moller, analyst at Deutsche Bank. "The one trust at risk in this respect is state-owned Bradford & Bingley's Aire Valley programme.""

Do I hear the sound of a banking system in meltdown? But of course it is all an American lead phenomenon, I know that is the case because Gordon Brown and the BBC keep telling me so.

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