I said yesterday that I rather admired the bravado on display at Northern Rock as they continued to offer mortgages with high multiples of income and over the value of the security. But his story today shows that they've moved beyond bravado into the realms of pure stupidity:

There are lots of logical reasons why Northern Rock should push on – regardless of the growing criticism – and pay shareholders their interim dividend.

For a start the cost of the 14.2p interim dividend is just £59m – "a mere drop in the ocean", as one Northern Rock adviser put it, given the £3bn that the troubled bank has had to borrow from the Bank of England to prop up its broken business model.

It is also reasonable to point out that the dividend was promised weeks before the bank was plunged into chaos and that it won't just be the board and senior management who miss out – small shareholders, frontline staff and pension funds will also be hit.

But the fact is that the Northern Rock situation is no longer about logic.

Well, yes, it is still about logic, but the logic of how people react, not the purer Cartesian logic, where we do what is correct.

The dividend is indeed a drop in the ocean, it has already been promised and it comes from profits that really were made.

However, that's not good enough: the directors need to be thinking a little more about how this will play with the less sophisticated man in the street. You can see it now, can't you? Those fat bankers have run their business into the ground, they're relying on the taxpayer to prop them up....and they're still creaming off the profits?

The thing about banking is that it's all about confidence. Northern Rock has lost that of the money markets, that's why they're in this mess, they lost the confidence of their depositors, as the queues showed, now they're angling to lose that of everone else in the country?

Via [Tim; Anorak]

Came straight to this page? Visit www.kerching.tv for all the latest news.

TrackBack URL for this entry:
http://shinymedia.headshift.com/cgi-bin/mtshiny/mt-tb.fcgi/58194

Listed below are links to weblogs that reference Northern Rock's Cartesian Well Of Bad Logic:

Comments

Support for Northern Rock hits the 10000s
In regards to the above, not necessarily so - there is still a sign of recovery for Northern Rock.

On 20/9 Backnorthernrock.com was launched to promote and support the
ailing Northern Rock Brand. We have now received support in the 10000s
for the company.

We have now received over ten thousand hits, and a substantial number
of support emails within just 5 days of operation, with no paid
advertising.
Please visit our Press Release section for more details of the
campaign: http://backnorthernrock.com/press.aspx

If you have any queries relating to the campaign or wish to get
involved please do not hesitate to contact us.
Yours sincerley,

Jacob Shaw
Campaign Leader
www.backnorthernrock.com

Posted by: Tim Walters | September 25, 2007 9:17 PM

"The dividend is indeed a drop in the ocean, it has already been promised and it comes from profits that really were made."

Always assuming that the balance Sheet prepared and published July 27th for period end June 30th and leass than 3 weeks before the Directors went cap in hand to BOE for a sub was in fact an accurate statement and valuation of the company assets.

The divvy announcement also was supported by a remark about Basel II which gave a spurious respectability (opaque to the vast bulk of shareholders if seen or read)to a rise of 30% in divvy on results which were (if balance Sheet was true and fair etc., which it evidently wasn't) virtually identical- after lending everything they can to anyobody who walked through the door.

It is not difficult to make a case -and many are preapring one now, that the Balnce sheet at 30/6/07 was fraudulent and the dividend declaraion reckless.

Please note the divvy according to the Board Announcement has been CANCELLED not postponed as some pres reports.

i.e an acceptance that they should not have declared it never mind not paid it.

The Germans sorted out the the saxony landban in 10 days, no panic no rus and 3.4 Bn Euros so much the same levwel of support. King is taslking bollocks about EU legislation - it didn't stop the Germans.

Posted by: ziz | September 25, 2007 10:15 PM

Post a comment

Name:

Email Address:

URL:

Security Code:

Enter the security code:

Remember personal info?

Comments: