Tuesday, February 19, 2008

Picking Over The Carcass

Financial engineers sort out Northern Rock

The vultures are closing for the kill... except... hmm... do vultures actually kill?

OK, scratch that.

Huge nasty killing things (like say, hyenas) are closing for the kill. The mortally wounded Crock lies groaning on the scorched rocks, barely able to breathe, let alone fight them off. "Uggghh... what will become of me?" he groans.

But just then, just when the hyenas are about to strike, a heavily laden camel hoves into view. Thank God! The sultan has sent his faithful idiot slave known as the Taxpayer out into the desert, laden with riches to parlay with the infidels. And the hyenas. And anything else that fancies a slice of the action.

The Taxpayer immediately sets to work unloading the camel.

First, he takes a huge treasure chest labelled £25bn Bank of England loan and hurls it at the hyenas. They laugh as only hyenas can, and gobble it down.

Next, he unfurls a huge illuminated scroll of priceless antiquity, and thrusts it towards the jackals (who've suddenly pitched up). It is the Great Promissory Note of Destiny which guarantees the jackals a free lunch for ever. They cackle excitedly, knowing it can never be rescinded.

He toils on through the heat of the noonday sun, unloading his riches and dishing them out.

But the more he hands out, the more he seems to attract the merciless creatures of the desert. The rattlesnakes, the buzzards, the scorpions, those black horny things that scuttle up your trouser leg... they flock and slither from many leagues to get their share.

Until at last the Taxpayer has given away everything... at which point there's only one thing left to eat.

You see, it's the nature of the beast.


And boy, have those creatures flocked to the Northern Rock debacle. This morning we've had more detail of the charges and fees levied by banks, lawyers and other assorted desert denizens. The total bill so far is £100m, including:

"Goldman Sachs, the investment bank, and Slaughter & May, the legal firm, stand to share between £15 million and £20 million for advising the Treasury on the sale.

Northern Rock – and therefore the taxpayer – is also set to pay its bankers at Blackstone, Citigroup and Merrill Lynch, and its lawyers Allen & Overy and Freshfield Bruckhaus Deringer, about £75 million in fees, including a £25 million success fee.

Sir Richard Branson’s consortium and a management team that also bid for the bank will each receive £5 million from the Treasury to cover part of their costs. There was also the prospect of further legal bills for the public purse."

Yvette ludicrously insisted on Newsnight she didn't know the details, and that anyway the fees incurred by the Crock itself were not down to taxpayers. But we can all recognise a feeding frenzy when we see one.

And it's by no means over. Apart from anything else, Big Ron's job (hopefully) is to run down the Crock and sell off all the good bits- just like has already happened with that £2.2bn equity release portfolio sold to JP Morgan (see this blog). But even assuming he gets a good price for all of that, and even overlooking the chunky advisory fees he'll doubtless incur, somebody's going to be left with the bare bones- the stuff that's inedible and therefore worthless.

Guess who that will be.

PS For an overview of the £3bn pa the government already spends on external advisors of various kinds, see this blog.


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