Northern Rock has been suffering for several months now regarding their lending practices and the US subprime market. A decision was finally made regarding the how to handle the bank. Darling was talking about offering Northern Rock up for sale in the private sector; however there was a lot of controversy regarding this thought. It would seem the Labour Party didn’t agree that the public sector should have a go at the bank. So after several long talks and plenty of opinions a final decision was made regarding the bank. The bank is now being bought out by the government. Northern Rock is going to be recreated and sold off only after term funding commitments are re-established. Other banks are going to have to step in to help restructure the bank.
The government now has 45pc of the entire economy. It relatively small, but it is at least making a profit. The only area in the government right now that is a concern is the investors. There are some legal issues regarding the government policies that the investors have opened up. The news is saying these little hiccups will be solved by Friday and that a closing price should be to the benefit of the investors.
Other news of important this week besides Northern Rock finally having a decision is the reporting season for the banks. Barclays and Lloyds both released a statement that they would raise dividends. They feel it should not be viewed as weak, but as a place to re-establish some stability. The banks have income sources different from the subprime and they believe these other areas will grow in the next few years.
Barclays has even shown that they are writing off their suspicious debts in order to get near last year’s numbers. They are also hoping for world growth that will not be in the UK or US. It seems that Barclays is showing a huge slice of revenue from other countries for this year.
The difference between Northern Rock and Barclay is that Northern Rock launched into the subprime market without having other areas to fall back on. This made the company unstable and therefore the investors decided to seek other places.
The economy is still a concern in this early part of the year. Inflation is still occurring, in which the consumers are finding it difficult to rally with the government. Instead they have a low confidence in the overall economy that is affecting spending. There are other concerns as well including the low wages. The wages have not improved as the inflation is rising. This means many of the UK residents are finding it more and more difficult to pay their debts as well as their living expenses. This in turn means that the outlook is not positive in the rest of the year. Many companies have seen poor numbers in the first part of the year. Even the FSTE is down from where it was a year ago making it difficult to find the right options for recovery.