Chapter 530 Run crisis (1)

The Federal Reserve injected liquidity into the market to ease the nervousness in the market, and reached an agreement with the Middle East consortium to sell part of the subprime bond portfolio to supplement sufficient cash flow. Stanley's executives determined that subprime mortgages Although the crisis has attracted a lot of attention, they have passed this hurdle safely.

   While the senior executives of Stanley were still complacent about reaching an agreement and the stock price rose, a large commercial bank in the United States on the other side of the Atlantic fell into an unprecedented panic.

  Established in 1965, Northern Rock Bank (Northern Rock Bank) was originally the Northern Rock Building Mutual Society, and later gradually developed into a commercial bank. It was listed on the London Stock Exchange in 1997 and became a listed commercial bank.

   Developed to 2007, Northern Rock Bank has successfully become one of the largest commercial banks in the UK, currently has about 1.5 million depositors. In terms of bank mortgage business, Northern Rock Bank is at the forefront of the entire British banking industry. It was originally the fifth largest mortgage lender in the UK. In the first half of 2007, the amount of new mortgage loans ranked first in the UK banking industry. , providing loans to about 800,000 home buyers, both in terms of scale and total amount, has a tendency to become the number one in the UK banking industry.

  As an aggressive commercial bank, the management of Northern Rock Bank has always maintained an aggressive style, which can be seen from their public financial statements. From 2002 to 2006, their cash flow has been negative growth. In other words, the lending business grew too fast, causing more cash to be handed out. However, because the operating income is also growing at almost the same rate, the two offsets, and the liquidity problem of Northern Rock Bank has not been highlighted.

However, in the report released in September 2007, Northern Rock Bank’s cash flow growth was still -43%, while the operating income growth dropped from the previous 20% to -11.11%. This abnormal situation immediately aroused concern from all parties in the market. Notice. Because Northern Rock is growing mortgage loans so fast that the corresponding savings income has not followed suit, there may be problems with liquidity.

  Banking operations need to consider three aspects, profitability, risk and liquidity. These three aspects can never be combined at the same time, because these characteristics are self-contradictory. As for which aspect to focus on, it depends on what kind of strategy the management of the commercial bank prefers.

   Obviously, the management of Northern Rock Bank intends to sacrifice liquidity to meet profitability. As for liquidity, they can obtain it in the inter-bank overnight lending market, although these funds are short-term. As long as they can meet the reserve ratio and core capital ratio, they don't care whether these funds are short-term.

  In addition to excessive lending, the banking layer of Northern Rock Bank is a group of risk-loving people. They strive to learn from their counterparts in the United States and use securities tools to excessively develop the market. In the housing loan market, they have designed various housing loan models including portfolio mortgages, fixed-rate mortgages, variable-rate mortgages, lifetime mortgages, and rental mortgages, greatly expanding their market share. And these bonds, they also packaged and sold them to investment banks in a similar way, and carried out securitization to get rid of risks.

  However, the subprime mortgage crisis that occurred on the other side of the Atlantic soon spread to the British Isles, and Northern Rock Bank, which was the home mortgage loan of the year, was the first to be affected. First of all, the credit rating of Northern Rock Bank was downgraded. Many rating agencies, including Moody’s, lowered the credit rating of Northern Rock Bank by one level. Fitch even kicked Northern Rock Bank from A- to BBB+, almost becoming the second grade rating.

Secondly, due to the troubles in cash flow, analysts in the market have also begun to be unfavorable to the shares of Northern Rock Bank. Most of the financial industry analysts do not recommend increasing their holdings of Northern Rock Bank’s stock, and one-third of the analysts "Sell" is recommended. Although Northern Rock Bank is still a company with strong growth and stable profitability in terms of price-earnings ratio, price-to-book ratio and other indicators, the market trend has quietly changed.

The Federal Reserve’s injection of funds into the market has completely shocked the market. Although everyone has heard about the subprime mortgage crisis in the financial market in the United States before, no one thought that it would be so serious. , even to the point where the Federal Reserve needs to take action in person. Soon the focus of the British market was on those financial giants in the housing mortgage loan market, and among them, Northern Rock Bank attracted the most attention.

  At eleven o'clock in the evening on September 13th, in the Northern Rock Bank headquarters building located in the Financial City upon Thames, according to the usual situation, except for the global trading department, the other floors had at most sporadic lights. But today's situation is different from usual. The top floor of the thirty-eighth floor is brightly lit, and figures keep walking back and forth. It is obvious that something unusual is happening here.

   "Just got the news that tomorrow morning the Financial Supervisory Authority, the Bank of Scotland and the Ministry of Finance will jointly publish a letter. The general content of this letter is to continue to maintain the stability of the banking industry."

It was exactly half past eleven before all the senior bank executives in the UK were called back. Before they recovered, Matt Ridley, chairman and CEO of Northern Rock Bank, said solemnly .

  Matt Ridley is in his fifties. Like many British people, he began to lose his hair in middle age. Now his hairline has reached the top of his head. His shiny bald head is his signature. Wearing rimless glasses, his face is already full of wrinkles, but it is this slightly aged face that has led Northern Rock Bank to flourish in recent years, quickly becoming one of the largest consortiums in the UK.

   "So?" The general manager in charge of credit business, Byrne Sand, spread his hands in puzzlement, his face full of doubts. In the past few years, the credit business has become one of the most profitable businesses of Northern Rock Bank. It is rumored that Byrne Sander is a popular candidate to take over as CEO, so he always tries his best to express himself in such high-level meetings.

Byrne Sander is in his forties, when he is in the prime of life, he is full of energy and forges ahead in his work. During the four years he entered Northern Rock Bank, the credit growth of Northern Rock Bank exceeded anyone's imagination, especially in the In the first half of this year, the growth of housing mortgage loans unexpectedly became the first in the UK, which made him even more glorious.

  The other dozen or so people sitting in the conference room did not speak, but seeing their flickering eyes, Matt knew that what they imagined in their hearts was similar to Byrne, and they didn't understand the purpose of today's emergency meeting at all.

After sighing, Matt Ridley had no choice but to explain the current difficulties faced by Northern Rock Bank in detail, "My friends, maybe you don't know that our bank's liquidity has already had problems. Because of the crisis in the United States The subprime housing mortgage crisis has brought the international financial market, especially the lending market, to a standstill. Therefore, the way we used to rely on borrowing cash to replenish liquidity no longer works. In desperation, I had to ask England for help , They have promised us to inject funds tomorrow to ease our tight liquidity."

"what?"

"how can that be?"

   "There is a problem with our liquidity, my God, this news must not be leaked!"

  …

   As soon as he said a word, the audience was shocked.

  Because the commercial bank is divided into several independent departments, if you don't sit in the position of CEO or CFO, you basically don't know much about the situation of other departments. The trading department is fully responsible for lending and borrowing of funds like this, and if there is a problem, the person in charge will report it to the board of directors or the CEO himself. So after hearing the news all of a sudden, other people who didn't know the inside story were all shocked. Only a few people who knew the inside story were "not surprised when they were in chaos."

   After a full five minutes, the voice of the discussion faded away. After initially accepting this opinion, Byrne Sand frowned and said: "Since the Bank of England has decided to inject capital, it is a good thing for us. At least let the market see the central bank's determination to maintain market stability."

  Although this is what he said, Byrne’s brows were already raised high. He would not be naive enough to think that things would be so simple, otherwise Matt Ridley would not need to call these high-level executives for an emergency meeting in the middle of the night.

"Yes, although there is support from the Bank of England, the problem is that it is impossible for the Bank of England not to inform the public of this matter, so they will jointly issue an open letter tomorrow with the Joint Regulatory Authority and the Ministry of Finance, the content of which is to maintain the stability of the financial system. Under the premise of this, inject funds into us as support.”

Matt Ridley shook his head slightly while explaining, he couldn’t stop the actions of these three institutions at all, and he couldn’t stop them, this is an established procedure, “So the question now is, if the market simply The letter interprets that we have a payment crisis, and all the savings in our banks may suffer losses, and then there will be a run on, and we are very likely to face a major crisis at that time, a crisis of survival!"

  Finally came to the most critical question.

  What any commercial bank in the world is most afraid of is not a loss, but a run. Because the capital of commercial banks comes from the deposits of ordinary depositors, and then distributes them to industries that need funds through its channels. In this process, companies rely on the price difference between the two to make profits.

  The basis of this kind of cooperation is based on credit and legal protection. Of course, the law cannot fully protect. Once the credit collapses, depositors would rather choose not to pay interest but to withdraw the principal. At this time, the bank has already distributed the funds, and the funds have become assets, which are basically unlikely to be realized in the short term. And if the depositors cannot be provided with the cash they need in the short term, the credit crisis will continue to expand and even spread to all aspects, and the worst result is a complete collapse.

  This is the crisis brought about by liquidity.

  At present, everyone is an elite in the industry, so they naturally understand the danger. Several people immediately turned pale with fright, and some even began to fidget. Although the British banking system has a good reputation and there has been no run on for a hundred years, but if a similar situation really occurs this time, no one can say what Northern Rock Bank will eventually become.

   “The purpose of this meeting is to…”

After looking around again, Matt Ridley had a panoramic view of everyone's reactions. At this moment, he had no choice but to stand up and say, "Mobilize all the resources you have, whether it's England, Scotland, or Wales. , even the United States, the Far East. As long as you have channels, you can file a report and apply to mortgage part of our assets to obtain liquidity as soon as possible. We must overcome this difficulty this time."

   "Isn't the Bank of England injecting enough funds to deal with this crisis?" Just when everyone was silent, Byrne Sand spoke again. Among these people, he was the one who didn't take this matter seriously, because now that the Bank of England has made a move, I believe they should not give up halfway.

"If a run occurs, factors such as the duration of the run, the amount of funds withdrawn, and the trust of the outside world in us are no longer under our control. Now, in addition to working hard to raise funds, all that remains is to I have concealed the news. As for the rest, leave it to God!"

  Matt Ridley took a deep look at Byrne, and said meaningfully, then he silently drew a cross on his chest, and then said solemnly: "Let's start now, guys!"

   Thanks to book friend a13702297, the roaring cripple, and Xiao Qi's civilization miracle for voting monthly! At the same time, I would like to thank my uncle, my money, and Xiaoqi for the reward of the miracle of civilization! I was in a hurry yesterday and didn't read it carefully, and I didn't see the monthly ticket rewards of many book friends, so I would like to express my gratitude today!

  

  

  (end of this chapter)