Is now a good time to buy Northern Rock?

Zascar

http://finance.google.com/finance?q=northern+rock

If you extend the graph to one year, Northern Rock shares were steady are around 1100 to 1200. A few days ago it hit a low of 127, and has now started rising again, closing at 151 today.

Obviously, it's risky, but do you not think a few spare quid thrown into northern rock right now has serious potential for some nice quick gains?

Comments please?

Blackjack

I've read that the value of it's loan book on it's own would be about 180 per share. I reckon that's all that anyone has any interest in at the moment and is likely the most you'd get in any purchase by an interested party. I have also heard that JC Flowers are taking a look, but I've no idea what they're prepared to pay.

SteadyEddie

there are much better buys out there than NRK. No one knows the buy out price that is going to be proposed. I would not touch them.

FLOOPER

SteadyEddie wrote:

there are much better buys out there than NRK.

Like what. Has the real value gone in the banks now. Have a substantial amount of my SSIA to invest in the next week but was hoping to have taken the value offered by the Irish banks earlier. Too late? I'm not looking for a killing bit at least a short to medium term investment?

Any advice would be helpful.

You're not from Cork BTW are you?

Thomas_S_Hunterson

I'd say it's worth a punt...maybe high risk though.

A lot of hedge funds seem to be taking positions, some quite substantial and as mentioned above, ex Goldman Sachs banker Christopher Flowers is considering a buy with under his fund JC FLowers

A Random Walk

This is as much "investing" as backing an outsider in the 3.15 at Newmarket.

What reason, other than "looking at a chart" (what sort of voodoo is that?) have you for sinking money into this?

The analysts who follow this stock are saying it is worth anywhere from zero to 100p.

Zascar

You are right, this is pretty much "Betting" -so to rephrase my question - is this worth betting on - I am hearing so many different opinions.

Sean, I have also heard sme hedge funds have been taking positions, do you have any links with further info?

Zascar

They are up 39% since this morning.

I intended to palce an order today but for some reason by dam e-trade account is onyl quoting their prices from Sep 2nd and has no data after that. I tried to call when but it is still very early morning for them. Very annoyed.

Peter McC

Zascar wrote:

They are up 39% since this morning.

Any indication as to what's causing the increase in value?

Afuera

Peter McC wrote:

Any indication as to what's causing the increase in value?

The Bank of England has extended how much it's going to help prop it up. They have extended the 100% guarantee on deposits to include new ones after Sept 19th. I think they're going to continue to provide this support until Feb 2008 which means Northern Rock is not under as much pressure to do a firesale of everything to tidy their books up. They're still not going to be turning much of a profit due to the cost of the borrowing that they still need to keep the business going (and the BoE is charging them 50 million for their guarantee) but the chances of the bank being broken up have reduced so it's given a boost to the shareholders. I'm wondeing though if a lot of previously interested parties may now be turned off NR as they won't be able to gain access to the loan book as easily. This saga still has quite a bit to play out yet I think.

SteadyEddie

Flooper: you must be having a laugh! No the value in banks has not gone, but it certainly has in NRK. Up and down like a yo-yo. Down 20% right now. Only for the gambler. Would you expect that from a stable bank?

drdre

What do you guys think , is it a good time to invest now as its fallen again.I think it will be bought out by another bank soon.It should go up abit.what do you guys think

Zascar

As long as you know it is very high risk, and you are prepared for the possibility of a loss, I'd say it's worth a shot. I wanted to put money in a few weeks ago (hence my originaly post) but missed the boat, and a few days later it jumped 35% one day and 25% again the next. However what could make it bounce back again I've no idea...

PDelux

Well if there is some buying pressure pushing the price up
it would cause the short sellers to cover, buy the stock back,
which adds to the buying pressure.
The more people bidding will cause the price to go up.
As well as that I read that there was an unusually high percentage
of the shares for NRK lent out which means new shares might be difficult to
come by and add to the urgency to cover.
Similar thing happened to the homebuilders in the US, apparently
the institutions were holding back supply to move the bids up and
started selling in to the demand. You can see on the charts for the
homebuilders the huge moves at different stages of the downtrend.

Time Magazine

drdre wrote: »

What do you guys think , is it a good time to invest now as its fallen again.I think it will be bought out by another bank soon.It should go up abit.what do you guys think

That's not investing. Really. That's like saying "I have a feeling Wigan will sign a new forward this week and beat Man Utd at 10/1." It goes against all logic of diversification and reasonable returns. It's pure, idle speculation. Speculation, of all forms of "investing", relies particularly heavily on asymmetric information (i.e. things you know that others don't [otherwise they'd be buying too]) and the only reason any of you are contemplating "investing" in Northern Rock now is because you heard about their problems on the news. That's common knowledge, not an informational advantage.

I'm not saying putting €10,000 on them now won't pay off. I'm saying you're really as well to put €10,000 on Wigan.

What's the difference?

Zascar

With rumors of a buy out and possible competition for who buys it, is it likely that shareholders would be well rewarded?

SteadyEddie

We have no idea of the buy out terms...what if the offer is below the current SP?

Thomas_S_Hunterson

Ibid wrote: »

What's the difference?

Well your analogy doesn't really match up, there really is no similarity between putting money on Wigan to win over Manu as investing in Northern Rock at all.

SteadyEddie

The similarity is they are both a gamble.

Speculation does not equal invesment. That it was Ibid was referring to.

Thomas_S_Hunterson

SteadyEddie wrote: »

The similarity is they are both a gamble.

Yea but betting on WIgan is much more of a gamble than betting on Northern Rock

xebec

Sean_K wrote: »

Yea but betting on WIgan is much more of a gamble than betting on Northern Rock

How so?

Thomas_S_Hunterson

Well if you look at the different possible outcomes of two possible 'bets'.

10000 euro on Wigan to beat Man U
---It is very likely that you will lose all your money
---It is very unlikely that you will gain any money

10000 euro on Northern Rock Shares
---It is very unlikely that you will lose all your money
---It is quite likely that you will gain money, and equally likely that you will lose a small amount of money

Obviously this is a gross oversimplification that doesn't take into account the dfferent types of positions one could take, but if you traded it right, northern rock could have made you a fortune, as many traders learnt when they shorted the sh*t out of it over the last few months

Time Magazine

Sean_K wrote: »

10000 euro on Northern Rock Shares
---It is very unlikely that you will lose all your money
---It is quite likely that you will gain money, and equally likely that you will lose a small amount of money

I've bolded the bits I see as important. Why do you think it's quite likely that you will gain money, particularly (presumably) in the short-term? Why have investors not copped onto this and willingly pay a higher price?

Why do you think it's equally likely that you will lose a small amount of money?

To me it seems like there's something like (illustrative purposes) a 10% chance you'll make a good return (say 25% over 6 months) and a 60% chance it will fall even further, losing about 10% of value. There's a small chance it will fall to next-to-nothing, and a reasonable chance it will stay about the same.

In that regard - a one in ten chance of succeeding - it's more like betting on Wigan rather than "investing", the primary focus of which of late has been low-risk/moderate-returns.

bottomdog

Northern Rock has already had much of its value corrected, its loan book is its only tangable asset gien its trade name hardly carries goodwill anymore, fixed assets and leases on the balance sheet are really minimal. the shares are currently trading about 12% undervalue but there is a massive risk built into the price as the takeover price will have to come at a 'fire sale' price anyway. I expect the offer price to be fractionally above the current price at best and 15% lower at worst.
It's a play for the brave I'm afraid

xebec

Ibid wrote: »

I've bolded the bits I see as important.

Cheers Ibid. Another point that needs to be made if we're talking about gambling is that with a bookmaker the odds are based on the risk inherent in the bet, therefore you get a better return for a riskier bet if you win. Betting on Northern Rock on the other hand, there are no explicit odds which makes it harder for somebody without a large amount of experience to figure out the risk and get the return they're looking for.

I understand Sean_K's theory that you are more likely to lose all your money on the bet on Wigan, but that fact is inherent in the odds that you receive. A more valid comparison - although I haven't thought about it too deeply, so I could be wrong - would be to look at the situation whether you win (gain any amount) or lose (lose any amount) and then decide which is the riskier bet, assuming of course that you can calculate the risk.

portomar

this is essentially a bet, not an investment. that doesn't mean it wont pay off though. The fact that a hedge fund are buying shares in NRK shouldn't be a buy signal, the very credit crunch happening at the moment has caused the collapse of hedge fund type investments in barclays. Hedgefunds usually deliver higher returns but have the cash to take the risk, i imagine our above punter with his ssia to invest does not. Also, there still seems to be a grey area over what say the BOE will have in the future of NRK and its loan book, one can only assume like a bankrupt company, the taxman gets paid first. The above poster gets to the kernel of the issue though, you are not privy to knowledge that others are who trade millions of NRK shares every day, steer clear. the reason its up 25% on the day is the loss of recent weeks and people thinking its oversold, maybe the bottom has been called, maybe not.

fobster

SteadyEddie wrote: »

We have no idea of the buy out terms...what if the offer is below the current SP?

As far as I know, the price the bidder has to offer in a takeover has to be at least equal to the highest price they paid for any shares in the company in the past 12 months. This isn't written in law though, so in NR's case it probably doesn't apply.

Time Magazine

Sean_K wrote: »

Yea but betting on Wigan is much more of a gamble than betting on Northern Rock

Link

Northern Rock shares dive after bid news
Monday, 19 November 2007 15:35

The share price of Northern Rock tumbled almost a quarter in value this morning after the beleaguered British bank said takeover proposals received undervalued the company. Northern Rock shares slumped 22% to 103 pence.

Northern Rock said today that approaches from potential suitors were 'materially below' its market value worth of £559m sterling at the end of last week.

The bank added that talks with the suitors were continuing, with approaches from other potential buyers expected 'in the next few days.'

Northern Rock, once Britain's eighth-biggest bank, revealed in September that the global credit crunch had forced it to seek emergency support from the Bank of England.

The group's borrowing from the central bank has reached an estimated £25.3 billion since then as it explores takeover proposals and rescue packages from at least four potential buyers.

Financial markets are nervous that more banks will report losses from the US sub-prime loan crisis caused by rising defaults by American homebuyers with patchy credit histories.

British bank Barclays last week became the latest high profile financial institution to announce hefty losses linked to the global credit crunch.

Separately, the British government's Treasury department said it was 'willing to discuss' proposals to take over Northern Rock which envisage extending the lender's emergency support from the Bank of England beyond its scheduled expiry in February 2008.

On Friday, Northern Rock's chief executive Adam Applegarth announced his resignation as an informal deadline for bids for the bank passed.

Among those parties looking to save Northern Rock is Virgin, the conglomerate owned by British tycoon Richard Branson. Another bid has been lodged by former Abbey National chief executive, Luqman Arnold.

A Random Walk

A Random Walk wrote: »

The analysts who follow this stock are saying it is worth anywhere from zero to 100p.

Looks like zero was the correct answer.

Thomas_S_Hunterson

A Random Walk wrote: »

Looks like zero was the correct answer.

And no doubt a fortune was made

Minder

Ever heard the saying, don't catch the falling knife?

Thomas_S_Hunterson

Minder wrote: »

Ever heard the saying, don't catch the falling knife?

Yea, but you can sure as hell short sell it on the way down, as i'm sure many in a position to do so did.

SerialComplaint

Zascar wrote: »

http://finance.google.com/finance?q=northern+rock

If you extend the graph to one year, Northern Rock shares were steady are around 1100 to 1200. A few days ago it hit a low of 127, and has now started rising again, closing at 151 today.

Obviously, it's risky, but do you not think a few spare quid thrown into northern rock right now has serious potential for some nice quick gains?

Comments please?

As somebody said over on Askaboutmoney.com recently, technical analysis of a share like NRK is a bit like checking your GPS when the car is hanging over a cliff.