Northern Rock Nationalized

123jump.com Staff
18 Feb, 2008
New York City

Northern Rock was effectively nationalized on Sunday, after the UK government failed to find a buyer. The intense negotiations with the two private equity controlled groups did not materialize in a deal. In London trading, FTSE 100 index tose 2.7% to 5,946 on a steep rise in banking stocks. Local media speculated that Barclays and Lloyds will report better than expected earnings tomorrow.

[R]2:00PM New York, 7:00PM London – UK assumes full control of the troubled lender Northern Rock in an effective nationalization.[/R]

In London trading FTSE 100 rose 2.73% or 159 to 5,946.60. Of the 102 FTSE 100 stocks 98 gained, 3 declined and 1 was unchanged.

Barclays Plc led gainers in the FTSE 100 stocks with a rise of 7.60% after the Sunday Times reported yesterday that the lender will probably report tomorrow £7.1 billion profit.

Other financial stocks gained as well. HBOS gained 5.01% and Alliance & Leicester rose 3.90%.

Brown Maintains Stance on Northern Rock Nationalization

The Financial Times reported today that British Prime Minister said Government intended to return the bank to the private sector once market conditions improve. However, the financial analysts predicted that it will be long time before Northern Rock returns to private hands.

The UK government decided to nationalize the fourth largest lender on Sunday after it failed to find a buyer at a price that the UK was looking for. Northern Rock experienced a run on the bank in September, the first in more than a century in the UK, after depositors worried that the bank may be insolvent.

Brown said that the potential suitors didn’t provide value for money to the taxpayer, adding that had the government not intervened in August the bank could have collapsed. Former chief at Lloyds, Ron Sandler, will lead new management and operate company immediately.

The troubled lender, Northern Rock has received injection of £26 billion from the UK Treasury, after the near collapse of the mortgage securities market.

Qatar Builds Stake in Credit Suisse

The Sunday Times online quoted state’s prime minister and chief executive of the Qatar Investment Authority Sheikh Hamad bin Jasim bin Jaber al-Thani’s interview with Bloomberg in its report yesterday saying the Gulf state has initiated a position with the aim to increase up to $15 billion in Swiss banking group Credit Suisse.

Qatar recently expressed its interest in investing in companies affected by suprime losses. Sovereign funds from Qatar and Abu Dhabi have amassed $3.2 trillion in assets on the back of rising energy prices.

Lloyds and Barclays to Post Robust Results

Separately, the online news edition also reported yesterday that Lloyds TSB and Barclays Plc will report robust results and declare an unexpected increase in dividend payouts.

The report notes that while Barclays, which will report its results tomorrow, will have to write-off an estimated £1.5 billion, it will post a profit of £7.1 billion. The bank is also expected to lift dividend by 10% and Lloyds TSB pretax profit will be at £4.4 billion.

U.K Property Prices Rise

Rightmove Plc reported today on its Web site that according to the Rightmove House Price Index average asking prices climbed 3.2% or £7,428 to £237,856 in February from £230,428 in January, reflecting seasonality in the marketplace.

Estate agents are currently competing for 132,000 properties compared to 144,000 in the same month last year and 155,000 in February 2006. Rightmove added that average asking prices could have risen 1.5% and 2% in February.

Commented the company that, “In addition, the average price has been exaggerated by more expensive three and four bedroom properties making up a larger portion of the mix, following the rush of cheaper one and two bedroom properties on the market in December.”

Gainers & Losers

Barclays Plc led gainers in the FTSE 100 stocks with a rise of 7.60% followed by rises in Lloyds TSB Group of 7.26%, in Standard Chartered of 5.81%, in Schroders Plc-NV of 5.42%, in and Vedanta Resources of 5.21%.

Barclays rose on reports that the lender will report a £7.1 billion profit tomorrow. Similarly Lloyds TSB is expected to report a £4.4 billion pre-tax profit.

Commodity stocks also gained on rising metal prices. Rio Tinto jumped 4.24% and BHP Billiton edged up 4.32%

Cable Wireless led decliners in the FTSE 100 stocks with a drop of 0.29% followed by losses in BT Group Plc of 0.21%, and in Carphone Warehouse of 0.08%.

International Markets

In Tokyo Nikkei 225 Index closed higher 12.84 or 0.09% to 13,635.40, in Hong Kong Hang Seng index decreased 389.18 or 1.61% closed to 23,759.25. Australia ASX 200 index decreased 48.20 or 0.86% to close 5,558.40.

In South Korea Kospi Index increased 1.47 or 0.09% to close at 1,696.24, in Thailand SET index closed lower 1.66 or 0.20% to 824.99 and Indonesia JSE Index edged decreased 3.49 or 0.13% to 2,684.70. Sensex index in India decreased 67.20 or 0.37% to 18,048.05.

In London FTSE 100 Index closed higher 159.00 or 2.75% to 5,946.60, in Paris CAC 40 Index increased 90.01 or 1.89% to close at 4,861.80 and in Frankfurt DAX index higher 135.12 or 1.98% to close at 6,967.55. In Zurich trading SMI increased 133.71 or 1.82% to close at 7,486.71.