Conditions in global liquidity are “extreme” and “continuing” said Northern Rock on Friday. No wonder the bank’s customers, in a paddy, took measures to ensure their own liquidity and in the process crashed Northern Rock’s website in the early hours of Friday morning.
So much for the comforting words of John McFall, parliamentary Treasury select committee chairman, who fresh from his bashing of private equity has found himself again in the spotlight. Mr McFall said: “I don’t think customers of Northern Rock should be worried about their current accounts or mortgages.”
But Northern Rock’s statement gave little in the way of succour to market watchers:
It has now become clear that the global credit and liquidity markets have not recovered in the early part of September, and that there continues to be a severe liquidity squeeze.
The bank added:
On the assumption that the current conditions remain until the end of 2007, there will clearly be an impact on Northern Rock’s 2007 asset growth and, therefore, on profits. There will also be a consequential impact on its 2008 profits, which will be driven by developments in global liquidity conditions and the interest rate and credit risk environment, as well as the prospects for the UK mortgage market.
No longer is this a subprime problem, a US problem, an ABCP problem, or a SIV or conduit problem. What was once held up as the darling of the UK banking scene, praised for its innovative approach and aggressive lending growth, is now in real danger – hit because it had a much smaller deposit base than other lenders.
The latest forecast numbers given by the bank have 2007 underlying profit before tax of between £500m and £540m, a hefty cut from £647m consensus forecast from analysts.
But we wonder how Northern Rock can possibly hazard a guess at how, when, or at what level its 2007 profit might emerge. Ahead of trading getting underway on Friday, the outlook, not least what kind of pasting Northern Rock’s stock might take, is still largely unknown.
FT Alphaville modelling suggests: 480p – 500p