Northern Rock – wishful thinking

It’s now been just over a year since the credit crunch began, and there are many indicators of stress out there – equity market falls, credit spreads widening, and collapsing consumer confidence are all things we’ve focused on over the last year.

Unsurprisingly, the main stress has been in the financial sector, the epicentre of this crisis. This is best typified by the fall of Northern Rock, whose downfall we have chronicled in depth on this blog – for more information see Not waving but drowning (Jun 07), Northern Rock not so solid any more (Jul 07), Beware of Falling Rocks (Sep 07), Northern Lights (Oct 07), a Christmas-themed Stable conditions (Dec 07), and most recently Recovery plan doomed? (May 08)

Yesterday the government announced that it was injecting £3 billion of its (our) money to subscribe for shares in Northern Rock. Northern Rock’s market cap peaked at over £5bn at the beginning of 2007, had fallen to £3.6 billion by June last year. By the time its shares were delisted, it had a market cap of £380m. Now it’s apparently worth almost 10 times what it was valued at in February this year. Wow.

Have things really barely deteriorated from the summer of last year? Have we really seen the most dramatic turn around in corporate history in the last six months? Today, Nationwide announced that UK consumer confidence dropped in July by the most since records began in 2004. It is very wishful thinking to hope that the first time buyer will return, the housing market will not fall, the economy is robust – and most of all – that Northern Rock is worth three billion pounds!


The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.

Richard Woolnough

Job Title: Fund Manager

Specialist Subjects: Government and corporate bonds

Likes: Running, cycling

Heroes: Mohammed Ali, Winston Churchill

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