A Very Interesting Story Unfolding Overseas That Could Forecast Troubles Here

by Florida's #1 Mortgage Planner on November 13, 2007

"Stricken mortgage lender Northern Rock may see the value of its equity wiped out and is expected to owe the Bank of England billions for years to come, according to documents seen by the Financial Times.

A briefing memorandum prepared for prospective buyers of Northern Rock by the bank’s advisers Merrill Lynch, Citigroup and Blackstone Group details a number of future scenarios for the bank."

This is how an article in FT.com started today.  Does anyone else see the writing hidden within the print?

Here we have Citigroup and Merrill talking about Northern Rock losing all of its equity and is expected to still owe billions.  Both of these two "advisors" are in the same situation when you look at their Level 3 Assets being larger than their equity, so it questions whether or not, by their own analysis, they can even avoid the same fate.  The difference is, I guess, that in the US it is OK to "hide" things from the balance sheet or create funds that artificially inflate value to offset losses.

The article continues…

"Two likely options include selling Northern Rock’s assets and business to a willing buyer and leaving shareholders invested in a rump company holding only the massive Bank of England loans. Northern Rock’s shareholders would get only “residual value” from the vehicle, after the bank’s huge debts had been unwound."

Doesn’t sound like much reason to own the stock if you ask me.  I may have to go over and "short" Citi and Merrill at this point as soon they may be worthless as well.

Maybe I am reading too much doom and gloom and irony into this, but it is interesting nonetheless.

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