The Sketch: Rock solid? Or are bank's assets only as safe as houses?

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The Independent Online

Our bid for Northern Rock never really got ready for the pitch to the Treasury. Sketch Writers Investment Prudential got distracted by some shiny thing passing by. But at least we'd decided we had to find out what Rock's mortgage book was worth. In our sophisticated investorial we decided to pay some surveyors to do a drive-by valuation of 1,000 Rock-mortgaged houses.

From yesterday's Estimates Day debate, that small precaution hasn't been taken. No one knows what the Rock's assets are. The place in the estimates where the figures should be are blank.

John Redwood wanted to know what the contingent liabilities were, the cash out, the costs to date. An estimate would do, considering the day. John McFall, head of the Treasury Select Committee, said something surprising: "The Select Committee doesn't have inside information."

They don't know! Clutch your throbbing temples in amazement, they've no idea what they've bought. Or if they do, they daren't tell us. Vince Cable recorded his surprise that the assets were assumed by all to be "basically sound".

The FSA (one of the larger contributing failures) had said all was well. The Governor of the Bank of England had said the loan officers had done "an excellent job". But, Vince said, there were 200,000 "Together" mortgages, rather more than 20 per cent of the total lending, which were well over 100 per cent, up to 125 per cent of the value of the property. And the deals were done at the height of the property boom, when Rock was writing nearly a fifth of all new mortgages in the country. "How could the chief regulator conclude these were sound assets?" he said. "They were also asked to stress test the company by imagining a 40 per cent fall in property prices. How could it possibly have survived? But it's written into the orthodoxy it would survive."

Vince also suggested that the Rock's offshore, non-dom, tax-haven vehicle, Granite, had been given the good mortgages, and Rock had been left with the unsecured loans that took lending up to 125 per cent of the assets. "We need a proper independent audit to find out what these assets are worth," he added. It still has Black Wednesday potential, I'd guess.

The Tory MP Michael Fallon said very heavy regulation combined with the promise of future bail-outs would take banks out of the market and make them something like public utilities.

The Sketch's recommendation is the imprisonment and/or the impoverishment of the directors. At least the public would get some sort of entertainment for their money.

simoncarr@sketch.sc

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