Comments on: The case against nationalising Northern Rock http://www.johnredwoodsdiary.com/2007/12/12/the-case-against-nationalising-northern-rock/ Conservative Party Member of Parliament for Wokingham Mon, 06 Oct 2008 14:32:55 +0000 http://wordpress.org/?v=2.6.2 By: Matthew http://www.johnredwoodsdiary.com/2007/12/12/the-case-against-nationalising-northern-rock/#comment-15558 Matthew Tue, 18 Dec 2007 11:00:17 +0000 http://www.johnredwoodsdiary.com/2007/12/12/the-case-against-nationalising-northern-rock/#comment-15558 Also, may I just say how enjoyable this blog is - you've really got the hang of the medium. Also, may I just say how enjoyable this blog is - you’ve really got the hang of the medium.

]]> By: Matthew http://www.johnredwoodsdiary.com/2007/12/12/the-case-against-nationalising-northern-rock/#comment-15557 Matthew Tue, 18 Dec 2007 10:55:51 +0000 http://www.johnredwoodsdiary.com/2007/12/12/the-case-against-nationalising-northern-rock/#comment-15557 But I don't see why this would be easier in the current limbo than under nationalisation (although Michael Taylor - is that Professor Michael Taylor, the financial regulation expert? - seems to have a better solution) Also when you say: aggrieved shareholders who would object to such a confiscation Do you really think there is any shareholder value left in the company, if the government pull the plug? Reply: I have avoided giving my view of the value of the shares for two reasons. Firstly I have pointed out that you cannot value the shares unless you know how much money the government will lend shareholders for how long. They refuse to tell us. Secondly, I do not wish to create a news story which could have any impact one way or the other on the shares as it is all so speculative.. Aggrieved shareholders might well bring an action against nationalisation for say But I don’t see why this would be easier in the current limbo than under nationalisation (although Michael Taylor - is that Professor Michael Taylor, the financial regulation expert? - seems to have a better solution)

Also when you say:

aggrieved shareholders who would object to such a confiscation

Do you really think there is any shareholder value left in the company, if the government pull the plug?

Reply: I have avoided giving my view of the value of the shares for two reasons. Firstly I have pointed out that you cannot value the shares unless you know how much money the government will lend shareholders for how long. They refuse to tell us. Secondly, I do not wish to create a news story which could have any impact one way or the other on the shares as it is all so speculative..
Aggrieved shareholders might well bring an action against nationalisation for say

]]> By: Matthew http://www.johnredwoodsdiary.com/2007/12/12/the-case-against-nationalising-northern-rock/#comment-15450 Matthew Mon, 17 Dec 2007 22:17:38 +0000 http://www.johnredwoodsdiary.com/2007/12/12/the-case-against-nationalising-northern-rock/#comment-15450 "setting deadlines for repayment" Aren't those the very targets you decry in most other posts? Reply: Of course not. I am in favour of the Bank of England behaving like a proper bank when it lends money - that means telling the borrower when they will repay it! “setting deadlines for repayment”

Aren’t those the very targets you decry in most other posts?

Reply: Of course not. I am in favour of the Bank of England behaving like a proper bank when it lends money - that means telling the borrower when they will repay it!

]]> By: Tim http://www.johnredwoodsdiary.com/2007/12/12/the-case-against-nationalising-northern-rock/#comment-14827 Tim Wed, 12 Dec 2007 16:33:17 +0000 http://www.johnredwoodsdiary.com/2007/12/12/the-case-against-nationalising-northern-rock/#comment-14827 I have not yet seen from Vincent Cable any examples of were nationalistion of a business has led to any long term increase in the value of the business. I have not yet seen from Vincent Cable any examples of were nationalistion of a business has led to any long term increase in the value of the business.

]]> By: Michael Taylor http://www.johnredwoodsdiary.com/2007/12/12/the-case-against-nationalising-northern-rock/#comment-14818 Michael Taylor Wed, 12 Dec 2007 12:43:56 +0000 http://www.johnredwoodsdiary.com/2007/12/12/the-case-against-nationalising-northern-rock/#comment-14818 Why not change the current loans into convertible preference shares excercisable to ordinary capital in, say, three years' time? This gives the existing shareholders (and existing management, if the shareholders keep hiring them) time to turn around the business within a sound financial structure, whilst holding the threat of dilution & nationalisation over them if they don't perform. It gives the management an incentive to generate enough cash to minimise the dilution by buying-back the govt's convertible preference shares - ie, by repaying the taxpayer. It minimises the market-distorting impact of the government capital by providing a strong incentive that cash generated by the business is directed towards paying down that part of their liabilities, rather than expanding their business. And without necessarily bailing out the shareholders, it offers the possibility of stable market conditions in which shareholders can make up their own minds about the future of the business. Reply: You could do that, but I think it better to concentrate on taking sufficient asset cover or collateral and setting deadlines for repayment. The taxpayer does not want to end up owning a problematic mortgage bank. Why not change the current loans into convertible preference shares excercisable to ordinary capital in, say, three years’ time?

This gives the existing shareholders (and existing management, if the shareholders keep hiring them) time to turn around the business within a sound financial structure, whilst holding the threat of dilution & nationalisation over them if they don’t perform. It gives the management an incentive to generate enough cash to minimise the dilution by buying-back the govt’s convertible preference shares - ie, by repaying the taxpayer.

It minimises the market-distorting impact of the government capital by providing a strong incentive that cash generated by the business is directed towards paying down that part of their liabilities, rather than expanding their business.

And without necessarily bailing out the shareholders, it offers the possibility of stable market conditions in which shareholders can make up their own minds about the future of the business.

Reply: You could do that, but I think it better to concentrate on taking sufficient asset cover or collateral and setting deadlines for repayment. The taxpayer does not want to end up owning a problematic mortgage bank.

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