NTHN.ROCK ORD 25P : Analyst says Northern Rock could pay
12 mars 2008•21:56
Analyst says Northern Rock could pay back £25bn early
Northern Rock could repay its £25bn loan from the taxpayer early next year by running down its mortgage business and building up its savings, according to an analysis published yesterday.
As Ron Sandler, the government-appointed chairman of the nationalised lender, races to put together a business plan that will satisfy the European commission, the analysis shows that he may be able to replenish the public's coffers faster than has been estimated.
Simon Ward, an economist at the fund manager New Star, calculated that £10bn of deposits could flow into the stricken lender while £13bn of mortgages could be redeemed, leaving the lender only £2bn short of the government's aim to repay the taxpayer in full.
Ward admitted that his analysis could be too conservative and that even more mortgage customers could walk away. But he also acknowledged that the outflow of customers could slow if other lenders were not able to satisfy the demand for new home loans because of the impact of the credit crunch on their own appetite and capacity for business.
"Similarly, concerns about unfair competition or the stability of other institutions relying on retail funding may force Rock to cut its deposit rates, implying a smaller savings inflow," Ward noted.
As it is, he has assumed that £13bn of mortgages will be repaid in 2008 because of the unattractive rates Rock offers to customers trying to re-finance fixed-rate deals that are coming to an end. He assumes these mortgages are held within Granite, Rock's securitisation vehicle. Granite is expected to use £9bn of this to honour payments to note holders, leaving a £4bn surplus.
Ward assumes that £9bn of mortgages outside the Granite vehicle will also be repaid during the year, giving £13bn that could be used to repay the Treasury.
In addition, he notes that Northern Rock's tracker online and silver savings accounts offer a competitive 6.25% rate, which he believes could attract £10bn of savings to Northern Rock on the basis that a product launched by the Icelandic bank Landsbanki last year attracted £5bn from a "standing start and without the benefit of a government guarantee".
Added together, this produces the £23bn of possible flows to repay the loan that is keeping Northern Rock afloat. Ward admitted, however that: "Rock may wish to continue to generate new mortgage business, albeit on a much smaller scale than in recent years, in order to maximise its attraction to an eventual purchaser."
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