Regarding the institutions and consortiums interested in acquiring Northern Rock Bank, the government has explicitly stated that their offers must include a detailed plan and timetable for assuming and repaying the British government's loans. The government will then select the most satisfactory proposal.
It is estimated that Northern Rock Bank's market capitalization has shrunk from over £5.2 billion in February of this year to less than £360 million today.
Ultimately, Northern Rock Bank's investment in subprime mortgage obligations (CDOs) was relatively modest, only around £250 million.
Therefore, their losses during the subprime mortgage crisis were relatively modest. The reason for the bank run was that only approximately 25% of Northern Rock Bank's loans came from its depositors, while 75% of its funds were raised through financial markets and interbank lending.
As mentioned earlier, the higher the proportion of depositor funds in a bank's loans, the lower the bank's risk. Therefore, when a bank reaches a certain level of development, with depositors withdrawing funds while maintaining deposits, the bank's deposits are generally stable, making a run extremely unlikely. The run on Northern Rock Bank was the first such event in Britain in over 150 years.
Funds from financial markets and interbank lending are different. Essentially, Northern Rock borrows funds from the financial markets on its own credit, then lends them to others, profiting from the interest margin.
While this approach enabled Northern Rock to grow rapidly during economic booms, it was also highly sensitive to interest rate fluctuations. When the subprime mortgage crisis hit and countries around the world began raising loan interest rates to control mortgage rates, its liquidity dried up.
At this point, if a depositor run breaks out, it would directly trigger a credit crisis. Depositors have already lent out their savings, but due to the impact of the subprime mortgage crisis, many loans are temporarily uncollectible. Now depositors are demanding their money out, and if you can't, you're completely bankrupt.
Credit is crucial in banking, or in the financial industry in general. Losing your credit means almost no one will do business with you, and you're effectively facing bankruptcy.
...
Today, London was blanketed in a drizzling rain. As Barron stepped out of the DS Financial Center, he was greeted by a chilly, damp air. He
had just discussed the acquisition of Northern Rock Bank with Standard Chartered Bank President Davis and others, who had arrived in London. Next, he was about to meet with Chancellor of the Exchequer Darling.
A motorcade was already waiting at the entrance to the DS Financial Center, and bodyguards in black suits flanked the gates, vigilantly observing the surroundings.
Barron's personal assistant, Wang Wanting, held an umbrella over Barron's head and waited until he entered the black, stretched-length Bentley Mulsanne. Wang Wanting closed the door and climbed in from the other side.
As the bodyguards gradually entered the Land Rover Defenders at the front and rear of the motorcade, the convoy set off in the deepening rain, leaving only the halo of headlights.
This meeting with Darling was a private one.
But at this moment, the conversation was bound to revolve around the acquisition of Northern Rock by the consortium formed by Standard Chartered and DS Group.
Brown served as Chancellor of the Exchequer before becoming Prime Minister, so it was clear that Darling, now Chancellor of the Exchequer, was one of Brown's closest associates.
Even so, Darling had his own priorities regarding the Northern Rock acquisition and wouldn't unscrupulously side with Barron. At the very least, if Standard Chartered ultimately won, its terms would undoubtedly have to be stronger than those of its competitors.
After all, in addition to the American consortium participating in the acquisition, Branson, the owner of Virgin Group, has a pretty strong network of contacts as well. "The current acquisition terms from various parties are still unsatisfactory to us, Your Highness. As I have said before, we require a commitment from the acquirer to repay the loan plus interest within three years, and to guarantee that Northern Rock Bank will not become a problem in the future."
Darling stated bluntly at the outset:
"If these acquisition terms are not satisfactory to us, then we will ultimately be forced to initiate the nationalization process of Northern Rock Bank."
As Chancellor Darling had said, the main demand of the Treasury, and indeed the British government, was that taxpayers' interests must not be harmed. This meant that the £25 billion invested in Northern Rock Bank, plus interest, must be repaid as soon as possible, and they demanded no more than three years.
Otherwise, using government funds to bail out the bank and then failing to recover the funds would inevitably lead to public criticism.
Why three years?
Because in three years' time, in 2010, Britain would face another general election, and they did not want their rescue of Northern Rock Bank to become a weapon used by the Conservative Party to attack them.
Darling desperately hoped to secure suitable acquisition terms for Northern Rock Bank, thereby completing its privatization and allowing the government to exit unscathed.
However, the bottom line was that the funds needed to be returned quickly, with punitive interest, to provide a public explanation.
If the proposed acquisitions were unacceptable, the only option left was to convert the funds into bank shares, nationalizing Northern Rock Bank. This would also provide a public explanation—the shareholders and management who had botched the bank would be expelled, and the state would take over. Therefore,
Darling made it clear to Barron that his threat to nationalize Northern Rock Bank was not just a threat, but a very real possibility.
Barron was well aware of this, as in his previous life, Northern Rock Bank's proposals remained unsuccessful until February of the following year, when the British government ultimately nationalized the bank.
This also illustrates the British government, represented by Darling,'s resolute stance on the Northern Rock Bank issue, and the difficulty of gaining acceptance for the acquisition proposal.
Barron understands that most of the institutions and consortiums bidding for Northern Rock Bank find it difficult to accept the demand to repay the government's £25 billion in debt and interest within three years. The Virgin
Group, led by the consortium, is willing to repay £11 billion immediately after acquiring Northern Rock Bank, but will require the remaining government debt to be repaid over longer installments, otherwise it will be difficult to bear such a heavy burden.
In fact, of the competitors other than Standard Chartered, Virgin Group's acquisition terms are the closest to the British government's requirements.
The other competitors, with the shortest timeframe, can only promise to repay the £25 billion in debt and interest within five years...