![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
Dear Darling
Feb. 5th, 2008 12:21 pmPoor old Alistair must be thinking, "it was never like this with the Health Service".
The Chancellor is learning that the private sector is a cruel place. Anyone who thinks that dealing with a pseudo-private concept like the Health Service is any training for the brutality of genuine private enterprise will surely have had their naivety completely dispelled.
Not only does Olivant pull out of the bid for Northern Rock at the last minute, stating, in effect, that the government conditions are impossible to abide by, but Virgin is now offering £50m less than it was before.
In the Health Service, you can often get away with imposing conditions as if you were a planning permission officer, because you are the biggest buyer in town. So, if you are a government servant dealing with health Service issues, you get the feeling that this is how private enterprise "works". This is how you deal with the private sector.
Unfortunately, this time round, the government has anything but the whip hand. The conditions that it attempted to impose in the naive belief that it was "in charge", have received the considered response of "go screw yourself".
But, never fear, Virgin Money to the rescue! With a "£1.25bn" bid. This is actually £50m less than an earlier indication, presumably on the grounds that there are now far fewer people interested.
Now, that number actually bears closer analysis. Because Virgin itself is putting very little of its own money into this. Of the £1.25bn, Virgin puts the value of "folding" the existing Virgin Money brand into Northern Rock at £250m. Is Virgin Money worth £250m? In today's market? Hmm. And, remember, Virgin will be charging Northern Rock a few million quid a year from the word get-go. To call any of that "performance related" would be deceiving. Related to what? Northern Rock's lending in 2006, or in 2007? The latter, I would wager. And you could call the new bank Donkeysville Moneynickers and its performance would be better than it was in 2007.
A further £500m would be by way of a rights issue. Virgin's fellow consortium members are US buyout specialist WL Ross, UK investment group Toscafund, and Hong Kong-based investment firm First Eastern. Branson claimed in November that he would put in £200m of his own money (that means, £200m of the privately owned Virgin company). But, wait, that's the company that would be getting £10m a year "brand licensing" money back. That's a 5% rate of return anyway. And there's no guarantee that Virgin Pvte would put in that much (40% of the consortium's investment). It's just a "pledge".
But, that's by the by. The fun part is watching the government squirm as it realizes that it can't boss the private sector around as if it were a VAT inspector. This is a harsh waking up to reality, and the puzzlement and displeasure being expressed in Whitehall is something of a joy -- even if Mr Pickle is an indirect beneficiary.
Nationalization proabably moved further up the agenda this morning. Just as the private sector can say "thanks, bu no thanks", that is also an option for the government.
No-one really cares about the best deal for the shareholders (apart from the shareholders). That's what buying equities is all about. I've owned shares in companies that have gone bust. It happens. Move on.
It would be reasonable (in a Thatcherite sense), although a bit harsh, not to care for the employees, since Northern Rock was expanding aggressively for several years and took into employment people who wouldn't otherwise have got jobs. But some others perhaps moved from jobs to Northern Rock. These employees were, in a sense, betrayed by future promises that turned out to be lies.
For depositors, I'm a great fan of caveat emptor. But I can also see the need for confidence in the banking system. The French didn't trust banks for centuries and as a result it lost a lot of economic growth to money stored under the mattress.
But the major concern should be what is best for the taxpayer. For the taxpayer is the one person in this entire deal who could end up subsidising other people, without ever having had anything to do with Northern Rock in his or her life.
The final question is, therefore, would nationalization or a deal with Virgin prove better for the taxpayer? That's an imponderable. if I thought that post-nationalization the company would be run well, something along the lines of Equitas, then I would be in favour of taking the company under the governmental wing. Ron Sandler and Ann Godbehere are top-notch people. If anyone could do it, they could.
The final option is the management buyout. Much though I would love that to work, it's a path littered with bankruptcies. And surely the memory of Rover will not completely have faded.
++++++++++++
The Chancellor is learning that the private sector is a cruel place. Anyone who thinks that dealing with a pseudo-private concept like the Health Service is any training for the brutality of genuine private enterprise will surely have had their naivety completely dispelled.
Not only does Olivant pull out of the bid for Northern Rock at the last minute, stating, in effect, that the government conditions are impossible to abide by, but Virgin is now offering £50m less than it was before.
In the Health Service, you can often get away with imposing conditions as if you were a planning permission officer, because you are the biggest buyer in town. So, if you are a government servant dealing with health Service issues, you get the feeling that this is how private enterprise "works". This is how you deal with the private sector.
Unfortunately, this time round, the government has anything but the whip hand. The conditions that it attempted to impose in the naive belief that it was "in charge", have received the considered response of "go screw yourself".
But, never fear, Virgin Money to the rescue! With a "£1.25bn" bid. This is actually £50m less than an earlier indication, presumably on the grounds that there are now far fewer people interested.
Now, that number actually bears closer analysis. Because Virgin itself is putting very little of its own money into this. Of the £1.25bn, Virgin puts the value of "folding" the existing Virgin Money brand into Northern Rock at £250m. Is Virgin Money worth £250m? In today's market? Hmm. And, remember, Virgin will be charging Northern Rock a few million quid a year from the word get-go. To call any of that "performance related" would be deceiving. Related to what? Northern Rock's lending in 2006, or in 2007? The latter, I would wager. And you could call the new bank Donkeysville Moneynickers and its performance would be better than it was in 2007.
A further £500m would be by way of a rights issue. Virgin's fellow consortium members are US buyout specialist WL Ross, UK investment group Toscafund, and Hong Kong-based investment firm First Eastern. Branson claimed in November that he would put in £200m of his own money (that means, £200m of the privately owned Virgin company). But, wait, that's the company that would be getting £10m a year "brand licensing" money back. That's a 5% rate of return anyway. And there's no guarantee that Virgin Pvte would put in that much (40% of the consortium's investment). It's just a "pledge".
But, that's by the by. The fun part is watching the government squirm as it realizes that it can't boss the private sector around as if it were a VAT inspector. This is a harsh waking up to reality, and the puzzlement and displeasure being expressed in Whitehall is something of a joy -- even if Mr Pickle is an indirect beneficiary.
Nationalization proabably moved further up the agenda this morning. Just as the private sector can say "thanks, bu no thanks", that is also an option for the government.
No-one really cares about the best deal for the shareholders (apart from the shareholders). That's what buying equities is all about. I've owned shares in companies that have gone bust. It happens. Move on.
It would be reasonable (in a Thatcherite sense), although a bit harsh, not to care for the employees, since Northern Rock was expanding aggressively for several years and took into employment people who wouldn't otherwise have got jobs. But some others perhaps moved from jobs to Northern Rock. These employees were, in a sense, betrayed by future promises that turned out to be lies.
For depositors, I'm a great fan of caveat emptor. But I can also see the need for confidence in the banking system. The French didn't trust banks for centuries and as a result it lost a lot of economic growth to money stored under the mattress.
But the major concern should be what is best for the taxpayer. For the taxpayer is the one person in this entire deal who could end up subsidising other people, without ever having had anything to do with Northern Rock in his or her life.
The final question is, therefore, would nationalization or a deal with Virgin prove better for the taxpayer? That's an imponderable. if I thought that post-nationalization the company would be run well, something along the lines of Equitas, then I would be in favour of taking the company under the governmental wing. Ron Sandler and Ann Godbehere are top-notch people. If anyone could do it, they could.
The final option is the management buyout. Much though I would love that to work, it's a path littered with bankruptcies. And surely the memory of Rover will not completely have faded.
++++++++++++
