No wonder Olivant is getting angsty. The private equity group headed by Luqman Arnold wants to get in the door at Northern Rock quickly and install new management – but are now growing so frustrated with the drawn-out sale process that they are close to pulling out, leaving Richard Branson’s Virgin Group as the final bidder.
An uncontested sale would be less-than-ideal – though not for the reasons that Vince Cable, the acting leader of the Liberal Democrats would have us believe. In his unseemly attack, he alleged the businessman had a “criminal record for tax evasion” and might not be deemed a fit and proper person to take the business over.
It seems rather irrelevant to moan about tax scams from Branson’s early business days when his business activities all end in the tax-advantageous British Virgin Islands.
But in the subsequent picking over of Branson’s brushes with the law, it emerges that in one instance he was had up over the 1917 Venereal Diseases Act because a student advisory service he ran offered advice on sexually transmitted diseases.
So he’s gone way up in our estimation.
On Thursday, the bank at the centre of the matter was going about its business, seemingly unperturbed. Their strategic review would be completed by February, they said. Disgraced chief executive Adam Applegarth is departing immediately (with a reduced termination package) to be replaced by Andy Kuipers, an executive director at Northern Rock since January 2005.
Applegarth gets his pay-off monthly rather than in a lump sum, and that’s offset with any earnings he gets from any new job. Kuipers was previously responsible for the coordination of Rock’s sales, marketing, products, pricing and retention activities – which probably makes him damaged goods, but he’s merely a caretaker.
A statement also contained details of Northern Rock’s treasury investments, or the lack of value therein.
The total possible writedowns are £281m, or about two thirds the bank’s current market cap, which breaks down as follows:
- a charge of £118m on SIVs, which were valued as of September 14 at £319m
- a writedown of £32m on three SIV-lites, originally worth £35m – despite one of the vehicles being restructured into a cash CDO in early September
- and a whopping potential writedown of £131m on Northern Rock’s CDO portfolio, marked to market from £167m to £36m at the end of November
So SIV-lites, restructured or not, are basically worthless and the bank’s CDOs are currently deemed to be worth 22 per cent of their face value. “Current market illiquidity” and ensuing volatility in valuations means that Northern Rock is deferring making an impairment charge against its CDOs until the end of the year in the vain hope that things have improved by then.Unlikely. Shares in Rock fell on Thursday – and were down 4.64 per cent at 94.6p by 8.42am GMT. It increasingly looks as though someone needs to put Northern Rock out of its misery – and sharpish.