Should I Buy / Sell Shares in Northern Rock
Today saw share prices in Northern Rock fall by another 33%.
There was another record withdrawal of saving funds by nervous investors.
This withdrawal occured despite the Bank of England promising to underwrite all savings.
This guarantee from the Bank of England is 100% watertight. There is no reason why they would want to let a major UK bank go under.
Furthermore, the Bank of England promised that there emergency borrowing would be extended should Northern Rock be taken over by another bank.
Despite the high street panic the fundamentals of Northern Rock are not altogether bad. Most mortgages are pretty secure. With interest rates likely to be peaking either now or at 6% UK mortgage defaults are unlikely to increase significantly.
Northern Rock has very little exposure to the bad debts US sub prime mortgage sector. There difficulties only stem from the fact that financial institutions are much less willing to buy the bundles of mortgage lending. However, primarily the problem is one of short term cash flow problems, and not fundamental weaknesses in the business.
However, having said that the damage to the reputation of the bank will not be possible to reverse.
The most likely scenario now is that Northern Rock will get taken over by another bank. This means they can take on their mortgages and get rid of the label "Northern Rock"
Should this occur the shares start to look an attractive flutter, especially if they were to fall further this week.
What do you think? Is is worth buying shares in Northern Rock now?
There was another record withdrawal of saving funds by nervous investors.
This withdrawal occured despite the Bank of England promising to underwrite all savings.
This guarantee from the Bank of England is 100% watertight. There is no reason why they would want to let a major UK bank go under.
Furthermore, the Bank of England promised that there emergency borrowing would be extended should Northern Rock be taken over by another bank.
Despite the high street panic the fundamentals of Northern Rock are not altogether bad. Most mortgages are pretty secure. With interest rates likely to be peaking either now or at 6% UK mortgage defaults are unlikely to increase significantly.
Northern Rock has very little exposure to the bad debts US sub prime mortgage sector. There difficulties only stem from the fact that financial institutions are much less willing to buy the bundles of mortgage lending. However, primarily the problem is one of short term cash flow problems, and not fundamental weaknesses in the business.
However, having said that the damage to the reputation of the bank will not be possible to reverse.
The most likely scenario now is that Northern Rock will get taken over by another bank. This means they can take on their mortgages and get rid of the label "Northern Rock"
Should this occur the shares start to look an attractive flutter, especially if they were to fall further this week.
What do you think? Is is worth buying shares in Northern Rock now?
Labels: Northern rock, Stock Market
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