Gotcha!

It seems that Sir Fred "The Shred" Goodwin has struck a deal with his former company (RBS) over his pension pot of £17M.

Sir Fred, who will go into the history books along with Lord Simpson of Marconi as being one of the great destroyers of value, has agreed to forgo £4.7M of his pension. He will now draw a "measly" £342,500 inflation-protected income for life, instead of the £555,000 a year agreed previously.

For its part RBS announced that an internal investigation into Sir Fred's conduct, expenses and use of company resources had concluded that there was no wrongdoing or misconduct that could justify reducing his pension.

In other news billionaire and cricket entrepreneur Allen Stanford has been arrested in the US after surrendering to the FBI.

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Bradford & Bingley - The Plaything of Speculators

In echoes of Marconi and Northern Rock, Bradford & Bingley appears to have become the plaything of speculators as it desperately searches for a new CEO and for a white knight to buy it out.

B&B shares jumped more than 25% this morning, 9¼p to 43¼p, on hopes that it will be bought out.

Pundits believe that it is now likely that, barring further disasters, there will be a wind down or buy out.

The pundits fail to recognise the havoc that the speculators will wreak in the short term.

As a guide to the future, look at what happened to the share price of Marconi and Northern Rock.

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The Nationalisation of Northern Rock

It should come as no surprise to learn that Alistair Darling (Chancellor) has laid out plans to nationalise Northern Rock, later this month, and sell off the assets.

His only/last hope of reprieve will be if the private sector bids for the Rock actually come to fruition. However, these look increasingly less likely as:

1 There is a £100M black hole in the pension fund

2 The shareholders are doing their best today to play ostrich, and stop any private sector takeover, in the vain and misguided hope that the bank is worth more than a few pennies. It is not, the previous board oversaw the destruction of this bank in much the same way as Simpson et al destroyed Marconi.

As and when the bank is nationalised, the assets will be sold off piecemeal and the hapless taxpayers will be out of pocket by at least £50M. Britain's reputation as a world class financial centre will take a tremendous knock.

So who is to blame for this mess, who should be held accountable?

In my view the following should be held accountable:

1 The previous board, whose greed and egos led them to ride roughshod over common sense and good banking practice by skewing the bank's risk portfolio heavily into the danger zone.

2 The FSA for being asleep at the wheel, and not stepping in sooner to stop the destruction of the bank.

3 The Prime Minister, whose dithering over the "non general election" caused him to hold Darling back from intervening in this fiasco earlier.

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Virgin Takes a Punt on Northern Rock

Sir Richard Branson's Virgin group is trying to take a punt on the corpse of Northern Rock. Virgin has put together a consortium to take control of Northern Rock.

It is in the public domain that there are two other bidders for the Rock, private equity firm JC Flowers and hedge fund Cerberus.

Virgin's consortium includes AIG, the insurance company, and the London hedge fund Toscafund which is headed by the former Royal Bank of Scotland chairman Sir George Mathewson.

In order to boost its credibility, wrt being able to pull off the bid, the consortium are looking for a well respected banking veteran who could take control of the Northern Rock board and reassure regulators, politicians and the financial markets.

The Virgin wishlist, according to the Guardian, includes Sir Brian Pitman and Sir Peter Ellwood ex ceos of Lloyds TSB, former Bank of Scotland chief Sir Peter Burt and HBOS chief executive James Crosby.

The Virgin consortium says that it will inject around £1BN in cash into Northern Rock, together with the Virgin Money business (estimated to be worth £200M).

The consortium would be issued new shares, at a deep discount to the current price, giving it around 50% of the bank. The Northern Rock name would be killed off and the new bank would be called Virgin Money.

JC Flowers and Cerberus have made it clear that current shareholders would receive very little in the event of a takeover.

Given the public offers on the table, and the fact that the sharehodlers are clearly not going to receive very much, it is very surprising to see how the shares have rallied last week. This morning they have fallen by 27% to 199p.

However, anyone currently holding shares in this company must face the reality that the current price may now be incredibly volatile and not necessarily reflect the true "value" of the company; as Northern Rock is now the plaything of the speculators.

As I have already noted several times before, this share now strongly resembles the dying days of Marconi's listing on the FTSE.

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Northern Rock

It looks like Northern Rock will be broken up, in a hastily arranged fire sale. The BBC reports that Cerberus and JC Flowers, two US investment funds, are interested in buying its home loan book.

The Treasury, now effectively in charge of Northern Rock, have given the two funds permission to engage the Northern Rock board.

This of course is bad news for the shareholders of Northern Rock who have seen their shares fall in value from over £12, to less than £1.80. As I have noted before, this story bears more than a passing resemblance to the decline of Marconi.

The UK Shareholders' Association have called on the Treasury to support the bank's shareholders, arguing that they should be protected against further losses by the government.

I would say that there is zero chance of that happening. Quite what the "take out" price for the bits and pieces of Northern Rock will be, is anyone's guess. However, Marconi was all but effectively wiped out,as it was gradually sold off.

Those that ignore the past, are destined to relive it.

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Northern Rock Caves In

Northern Rock finally caved in to pressure from politicians and taxpayer groups, and cancelled it £59M interim dividend. The 14.2p-a-share dividend was due to be paid next month to shareholders on the register at the end of this week.

Thus hammering another nail firmly into the coffin of the shareprice.

Northern Rock is now trying to sell itself, potentially to investors who target distressed assets.

Selling Northern Rock, possibly in pieces rather than as a whole entity, will effectively wipe out the remaining share price. The shares have fallen 74% since the bank said it was having credit problems 12 days ago.

The bank, trying to shore up its share price, said after the close of trading yesterday that it had received several approaches. Talks are preliminary and no price has been mentioned, it said.

This situation is beginning to resemble the Marconi debacle, where stock that once traded at above £12 ended up being traded for 12p.

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