A rather laughable front-page ‘scoop’ in the Grauniad today: Northern Crock “is facing a Charity Commission investigation after it emerged that the bank exploited the name of a charity for disabled children while creating an elaborate financial arrangement for maximising profits from home loans”. Yep, folks, the Crock’s Jersey-based mortgage securitisation outfit 'Granite' is – gasp - a charitable trust !
Capitalists@Work can reveal: so are almost all other securitisation SPV-owners !
Tip for the Charity Commission: no, this is not fishy (it’s to ensure the resulting finance is truly off-balance sheet, the whole point of the exercise), and if you’d like to find out how it works, it's all set out in the HMRC’s helpful website here. They'll send you a free CD, if you ask . . .
Actually, I sort of imagine the Commissioners know about this already – even if the Editor of the Grauniad and his sandal-wearing readership don’t. And they give these people votes ? as my mother-in-law says. Tomorrow’s letters page should be funny.
ND
HATTERSLEY UPDATE
As predicted yesterday (comments, below), the Tub of Lard has swung into action: his apoplectic partisan sophistry on The Daily Politics was a classic of its kind, a joy to behold. Polly Toynbee next …
20 comments:
I'll be interested to know whether, if the deal goes through, Virgin will keep that nasty pink colour scheme.
Ed - I'm sure they paid a great deal for that sophisticated logo & branding, we should not mock
Old Spitter is back is he. Marvellous.
This is new to me and I don't do cityspeak really.
Is this charitable SPV thingy an example of the sort of thingies that securitised and passed all on the CDO's and other credit derivatives then?
Steven - yes: when a company wants to securitise a stream of revenue - e.g. interest payments from a batch of mortgages - they bundle them up and create a new company that owns the right to these streams, plus collateral etc. But if they owned or controlled that company, the attractive finance the latter will raise on the back of the securitised assets would not be off balance-sheet for the former, with credit rating and/or tax issues resulting. Having the latter owned by a limited-purpose trust is the standard means of severing the link.
(Credit derivatives aren't quite the same thing)
Isn't that how PFI works too?
Dear Mr Drew,
Many thanks for the explanation but i think I will stick with National Savings because I understand how it works.!
If the Charity Commission start laying into Northern Rock, who would appear to be closely linked to Nulab, then the more dirt that flies the better, I'd have thought.
Ken - you have just neatly captured the First Principle of Financial Risk Management: if we don't understand it, we're not going to get involved with it. I congratulate you ! and no irony intended: there are very many supposedly Big Players who flout this and flounder.
The risk-free part of my own portfolio (which is a lot bigger proportion today than a couple of years ago) is in National Savings products, let me assure you. I no longer consider cash-in-the-bank risk-free.
Mark - the more, the merrier, I agree: but this is a horse that won't run, Master Secretary; and I suspect the Commissioners have better things to do
Ed - yes, there are similarities: in securitisation the 'originator' essentially guarantees to pay over an ongoing revenue stream, and thereby raises finance that isn't technically debt (as it would be if the stream were interest-payments).
In PFI / PPP the government (or local authority or PCT etc) guarantees ogoing payments of some sort, and thereby raises funds for some project that isn't technically public-sector debt. This sometimes goes wrong for Brown ! as we highlighted here.
http://cityunslicker.blogspot.com/2007/09/town-tubes-slowly-coming-unstuck-for.html
There are sometimes sneaky aspects to both schemes which can result in strong theoretical arguments that the finance should indeed count as debt. It would be 'interesting' to investigate whether some of NR's securitisations actually involved recourse to NR in the event of default on the mortgages ...
Enron *ahem* did a lot of securitisations and I have long posed the question, here and elsewhere: Will, and if so exactly how will, Brown's 'Enron economics' follow the Enron parallel to ultimate collapse ?
Why don't you write a letter to the Graudiad about it? Or maybe your mum has already.
Ellee, the letters page was a disappointment, I think someone tipped off the editor he'd made an ass of himself already
no matter, Polly will doubtless restore the gaiety of the nation in the next day or two
As you note the Guardian story was a complete non story. In fact this is one (the only) area where the NR has been fairly well behaved since it does actually but its SPVs on balance sheet (and show all the details in the accounts - so that financial journalists can easily find their exclusives many years later). Even before IFRS all the Granite exposures were disclosed using linked presentation.
The fact that the journalists were trying ot insinuate something was happening similare to Enron really just demonstrates the appalling level of financial journalism we have in this country (as for political journalists talking about financial matters don't get me started). I'd be interested to know if anyone reading this column who has in depth knowledge of some financial matter who has ever seen it accurately reported by a journalist.
BTW all those people talking about the NR being close to the Labour Party are very wide of the mark - perhaps they ought to start by looking at the ancestry of the former Chairman - Ridley of Old Nick and don't mention the war fame.
TB - well thank you for your opening remark.
Since you ask, yes, I have seen articles in the Economist and, once in a blue moon the FT, that show signs of accuracy and genuine comprehension. All too rarely are they truly investigative, however - mostly reactive. (It's more than a financial journalist's job is worth to blow the whistle on a potential advertiser)
But you are broadly right, they are mostly ignorant - and lazy
Honourable mention for Private Eye, though, which gets closest to what one would hope for from all financial journos.
On NR, frankly you are just wrong. It is in bed with the Labour movement in the N.E. as far as it could be and still be a limited company. See Hatfield Girl passim
Isn't the issue more about trusted (?) institutions, at the heart of our economy and society, giving the appearance of charitable purposes when the intention is quite obviously otherwise?
But maybe your mum has already made that point?
I was particularly entertained by the remark from the charity that they were investigating how they had been named as a beneficiary without their consent. Presumably, if they got a bequest in a will (of which they had no prior notification) they would "investigate" just as thoroughly.
I also loved the idea that their biggest ever donation was £750, and then later on it turns out they got £40,000 from a NR fundraiser....
(by the way, I read about the Guardian story weeks ago on another blog - can't remember which one though...)
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