Northern Rock, a bank that was in the headlines a while back, has got into a spot of bother. They have lost some more money, but it is bound to turn up sooner or later. They were last in the news when Mr Darling, the Chancellor, bought the bank with the government's money. Not your money, so don't panic, it was the government's own money from the biscuit tin under a bed in number 11 Downing Street.
Now the government is going to put in another £3 billion. Not that Northern Rock need the extra money you understand, although they managed to lose £585 million in the last six months. That's £585 million of losses because they aren't going to get back as much as they thought they were going to get back, well actually it must be more than £585 million because the write off has wiped out all their margin income on their good loans as well as giving a net loss of £585 million, which is quite some going given that they have slashed their costs and stopped taking new business.
Well as I mentioned earlier, the government has decided to put in this new £3 billion, not because they have to, but because the FSA, which is coincidentally run by the government, says they have to, because you see the Treasury have to run Northern Rock just like every other bank, despite the fact that they are running off the loan book. This extra capital will protect against future lending decisions (which Northern Rock are not going to take) and give depositors extra security from future losses, although of course the depositors don't need that protection because they have government guarantees.
So don't worry about the £3 billion of government money, because they are almost certain to pay it back. If you look at the last six months they managed to pay back over £9 billion, by reducing their loan book by £14 billion through loan repayments. They had to pay quite a lot of that £14 billion to fleeing depositors, but I am sure they aren't short of cash. Probably.
Have you ever been spun a line?
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