SUBPRIME CRISIS AND ITS EFFECT ON THE NORTHERN ROCK BANK

5/9/2011

Sub prime crisis and its effects on Northern rock bank

Executive Summary Banking is a very important operation in any country. It helps the people to keep their money safe, save and can get some interest on the money. These banks can have a very major impact on the overall money structure of the whole nation. So they are like the financial backbone of any nation. For any nation, it is very important to have a strong back bone which means strong banking structure. Here, the dissertation is about looking for the structure of one very major bank of UK which is Northern Rock Bank. There was a major crisis in 2007 in USA which was known as subprime crisis and which had an adverse impact on the whole globe and banks. Here, this issue is being dealt in very detail. The report is going to understand the subprime crisis and its impact on Northern Rock Bank. (Barr.A ,2007) The major research questions which are being dealt in the report are about the impact of subprime crisis on the bank and how the management took action to come out of this crisis, the management decisions to go for the nationalization of the bank and its impact on the overall performance of the bank. This research is an attempt to analyze the steps taken by the government and the top management for the situation. The report will be carried out to have a detailed literature review about the concept of sub-prime crisis, how it affected the banks and the economy of the nations and the whole globe, its adverse impact on the banking structure and the management decisions and the effect of those decisions. The research methodology section will be helpful to use the secondary data to have more and better understanding about the impact by analyzing the secondary data and it will help to give some recommendations on the basis of the findings from the study.

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Sub prime crisis and its effects on Northern rock bank

Contents
Chapter 1 ................................................................................................................................................ 5 1.1)Introduction of the Study.. 1.2) Background of the study 1.3)About northern rock bank 1.4)Need of the study 1.5) Research questions 1.6) Research objectives 1.7) Organization of the dissertation Chapter 2 Literature Review .««««««««««««««««««««««««............ . 2.1) Sub-prime crisis & its causes 2.2) USA & sub - prime crisis 2.3) Sub - prime crisis & its impact 2.4) Sub - prime crisis & its impact on Northern rock bank 2.5) Nationalisation of Northern rock bank 2.6) Key issues identified from literature Chapter 3) Research methodology 5 .6 7 ..8 .8 ...8 9 12 ..12 .16 ...20 . 24 . .27 ...29 31

3.1) Aims and objectives of research methodology««««««««««««..«««««.32 3.2) Reaserch approach . 3.3) Research strategy: case study . 3.4) Alternative research study . 3.5) Experimental research strategy . 3 32 33 ..34 34

Sub prime crisis and its effects on Northern rock bank 3.6) Survey research strategy . 3.7) Sources of research«. 3.8) Methods of data collection«. 3.9) Observation .. 3.10) Experimentation .. 3.11) Simulation .. 3.12) Interviews .. 3.13) Questionnaire«. 3.14) Strenghs of methodology . 3.15) Limitations of methodology . ..35 .35 36 ..37 .38 ..38 ..39 .40 .40 ..40

chapter 4) Analysis & interpretations .................................................................................................... 41 4.1) Aims & objectives 4.2) Analysis of northern rock bank 4.2a) Introduction 4.2b) Background Chapter 5) Recommendations 5.1) Impact 5.2) Recovery Chapter 6) References ..42 .44 ..44 ...45 ..63 63 .63 .............68

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they started selling the houses which got very less amount of returns which is very negligible of the amount of the loans which were being given.Sub prime crisis and its effects on Northern rock bank Chapter 1 Introduction and Background of the Study 1. background of the study. the banks had give higher amount of loans to the citizens for purchasing the houses. here the research is analyzing the effect on sub-prime crisis on Northern Rock Bank of UK. In United states.1 Introduction This chapter is going to detail about the introduction of the study. This will contain the brief introduction of the whole report. the government and the banks started taking their homes back and to recover those money. This affected lots of banks of US in 2007 which later on had an adverse effect on the other banks of the globe. 5 . banking and financial institutions are known to be more prone to crisis or issues. this will helpful for raising the research questions and the aim of the study and the research objectives. In the finance area. the loans have been given to the persons who were not having income to pay the loans and when they became defaulters. The organization of the report will tell about the brief that what are being covered by the chapters so that it can give a better understanding of the report. One of the most recent issues among banking and financial institutions is the issue of the sub-prime crisis which hits the United States and affects other international banks like Northern Rock. Unlike many other industries. characterized by a rise in subprime mortgage delinquencies and foreclosures which resulted in decline of securities backing said mortgages. the US subprime mortgage crisis was one of the first indicators of the late-2000s financial crisis. The banks incurred lots of losses and the banks got liquidity crunch and this whole event affects the whole banking and central banking system of USA as well as the whole globe.

Figure 1.2 Background of the Study The study which is being carried out in the report is about looking the impact of sub-prime crisis on the Northern Rock bank.1 shows that the main cause of mortgage sub-prime crisis.1: Subprime Mortgage Crisis The reasons of the crisis are low interest rates and large inflows of foreign funds created easy credit conditions for a number of years prior to the crisis which fuelled a housing market boom 6 . the decisions taken by the management on that point and the decision to make the bank a nationalized bank. Following Figure 1. The background of the study shows that the main causes of the sub-prime crisis and its impact on the banks.Sub prime crisis and its effects on Northern rock bank 1.

the understanding of the sub-prime crisis and the causes of this. According to council of Mortgage Lenders statistics. The brief introduction of Northern Bank is that it was established in 1997.Sub prime crisis and its effects on Northern rock bank and encouraged debt-financed consumption. 1. In 2006. Along with many other British building societies in the 90s. The crisis had made a lot of adverse impact on the performance of the bank. The USA home ownership rate increased from 64% in 1994 to an all-time high of 69. Subprime lending was a major contributor to this increase in home ownership rates and in the overall demand for housing. At the time of crisis. the Northern Rock opted to float and demutualise on the stock exchange so as to expand their business portfolio. there is a need to have an overview of the bank also. the Northern Rock has expanded through the acquisition of 53 smaller building societies which include the North of England Building Society in 1994. the bank had moved into sub-prime lending via a deal with Lehman Brothers. Northern Rock is one of the top five mortgage lenders in UK. there is enormous amount of growth in terms of revenues and sales and new customers. the bank was not able to perform well and ultimately in September. In the 30 years of the company.2% in 2004. The NRBC was established in 1965 as an outcome of the merger of the Northern Counties Permanent Building Society which is established in 1850 and the Rock Building Society which has been established in 1865. Although the mortgages were sold under Northern Rock's brand through intermediaries.3 About Northern Rock Bank Northern Rock Plc formerly known as Northern Rock Building Society is a UK bank which is currently owned by the government. the overview of the Northern rock Bank has given a good 7 . The further sections will detail about it. The earlier introduction about the study. 2007 Bank of England had taken it and made it as a nationalized bank. it is very important to understand its impact on Northern Rock Bank. As. which drove prices higher. the background of the study. was a bank which performed very well in the duration of his establishment to the year of crisis and in these ten years. the risk was being underwritten by Lehman Brothers.

4 Need of the Study It is very important to understand the need of this study and how it is relevance for the subject area and the student. These will help to formulate the research objectives and this will help to carry forward the research. 2010) 1. This study helps to understand how to take decisions in these situations to better survive and get good results. The research questions aimed in this study are as follows: y How the sub-prime crisis had an adverse impact on the operations of Northern Rock Bank? y What were the issues confronting the management at the Northern Rock during the subprime crisis? y What decisions the management has taken to overcome the situation raised due to subprime crisis? y What the suggestions can be put towards management to better handle such type of turbulent situations in the future? 1. (Fransesco Trbbi.Sub prime crisis and its effects on Northern rock bank hand to understand the research questions and these questions will be helpful for formulating the research objectives. This is very important for a management student and the practitioner to understand the situations which are beyond the control of management. It is very important to have an understanding of the contingent approach of the management. it is very important to find out what the research questions are being undertaken in the study.5 Research Questions After understanding the need of the study. and the impact of these on the business and on the economy. 1. which helps to prepare for the turbulent situations of the future.6 Research Objectives 8 .

To discuss the management¶s decision of nationalizing the bank. 1.Sub prime crisis and its effects on Northern rock bank The above questions help to formalize the specific objectives to carry out the research and find out the impaction for the management. Chapter 1 deals about the introduction and background of the study. The study is all about understanding the impact of sub-prime crisis and its impact on Northern Rock Bank. The main goal of this research is to analyze sub-prime crisis and its effects on banking and financial institutions.7 Organization of the Dissertation Figure 1. The chapter raises the issue of need for the study and the research questions and the objective. These research questions and the objectives will help to form the study for further. In particular. To provide sound recommendation and conclusion about the issue.2 shows about the organization of the dissertation. this paper attempts to achieve the following objectives: y y y y To determine the steps taken by the management during this crisis. 9 . It helps to build the base of the study and the research. To make an analysis of the situation and find out the results. It deals about the major issues related to sub-prime crisis and its impact on the economy of USA and whole globe.

2: Organization of the Dissertation Chapter 2 is all about the literature review of the study and its related issues. This deals about how it affected the bank. 10 . It will talk about the major decisions the management has taken at that time and how it impacted the whole operations of the bank.Sub prime crisis and its effects on Northern rock bank Figure 1. This chapter also deals about the impact of the sub-prime crisis on one of the very popular banks of UK Northern Rock Bank. how the bank was in the turbulent conditions and the decision of the Bank of England to make the bank as the nationalized bank. This chapter deals about the major causes of sub-prime crisis and its impact on the global economy and the USA economy.

the interpretations of the results and data which will be helpful for understanding the impact of the sub-prime crisis on the bank. graphs and diagrams will be used to show the data collected which will be helpful to show the analysis of the data and on the basis of this data. This summary of the findings and the learning is helpful for the management for taking actions for the future. Chapter 6 is about the summary and the conclusion of the findings and the learning from the study. Chapter 5 is making the recommendations on the basis of the analysis of the data and the charts and the graphs which are being drawn on the basis of the data. Chapter 4 is about the analysis and interpretation of the data which are being collected in the chapter 3.Sub prime crisis and its effects on Northern rock bank Chapter 3 is a chapter of research methodology. the type of methods will be used to carry out the research and the type of the data which will be used for the research and the method used for the collection of the data. The different ways as charts. This chapter is helpful for the researcher to deal about the study and how the research will be conducted to carry about it and find the results. These recommendations will be for the management and the practitioners to understand the turbulent condition and the impact of the condition on the management. 11 . This will show the data collected and the tools of the data collection. The chapter will deal about the type of the research the study is.

to withdraw their savings due to fallout from the subprime crisis. home mortgage loan industry and then it will discuss about the impact of the sub-prime crisis on the Northern Rock Bank. Figure 2. This crisis has a main root in the high lending rates for 12 .1: People queuing outside a branch in Golders Green.1 Sub-prime crisis and its Causes The sub-prime crisis is related to economic issue which is because of the reason of the less liquidity in the hands of the company and this liquidity crunch has become a problem for the firms to get operationalised very well and has been burst in a crisis for the banks and then for the country and then reached to whole globe. The major consequences of the crisis on the USA banks. its major causes in the general for the housing industry and impact on the banking sector. London.Sub prime crisis and its effects on Northern rock bank Chapter 2 Literature Review The chapter literature review is going to deal about the brief about the sub-prime crisis. 2.

These causes include the inability of home owners to pay their mortgage loan. Figure 2. bad monitory and housing policies.Sub prime crisis and its effects on Northern rock bank the homes and then it had created high amount of risk for the borrowers with having low rates of revenues and it had a ripple impact on the operation and the financial statements of the firm. overbuilding during the boom period. The higher sub prime rates have adverse impact on the whole global economy. 13 .2: Sub-prime Crisis There are lots of factors pervasive for the crisis in the housing and credit market. risky mortgage products. 2010). 2009. bond market and predatory lending practices of mortgage lenders (Roubini. inappropriate government policies. Jaffee. investors and creditors. business owners. international trade imbalances.

3: U.2% in 2004.S. In 2006.Sub prime crisis and its effects on Northern rock bank The causes can be classified in the following heads: 1. existing home sales (2005-2009) 2. This had all increased the USA home ownership rates 64% in 1994 and all time high 69. Figure 2. typical American houses prices increased to 124%.65 million units of homes purchased (22%) 14 . Sub-prime lending was a major contributor for these higher rates of increments. Bust in housing market: In USA. low interest rates and easy credit conditions have made a lot of citizens to go for the mortgage loans for the homes. 1. During 2006. Homeowner Speculation: The major factor for sub-prime mortgage crisis is speculative borrowings in residential real estate.

15 . a record level of nearly 40% of homes purchases were not intended as primary residences. In 1982. Between 2007 and 2008. Government Policies: Both government failed regulation and deregulation contributed to the crisis. the commission reports from the financial crisis firm were that most of the financial firms had not contributed at the time of crisis to come out of it. but they followed rather than led Wall Street and other lenders into subprime lending.Sub prime crisis and its effects on Northern rock bank were for investment purposes. which caused investment sales to fall much faster than the primary market. primary adjusted prime rate and balloon type payment system was more in the fashion. These figures reached to 28% and 12% in 2005 respectively. Economists argued in 2010 that the substantial rate of growth of residential and real estate pricing bubble had made the case to those who argued that predatory landings were primary causes of the crisis.3 has clearly depicts the downgrading by the credit rating agencies. This all ratings had shown a negative impact on the profits of the firm and this brought the share prices of the firms very low which was a major outcome of this crisis and seen directly on the companies. The GSEs participated in the expansion of subprime and other risky mortgages. In the early 1980s." 3. Figure 2. 4. there were lots of types of prime lending rates in which mortgage loan. the pictures seen about the global financial market and the credit ratings given by the credit rating agencies has clearly shown a deprecation which can be clearly seen in Figure 2. Inaccurate credit ratings: The credit ratings given by the credit agencies are also under scrutiny for the credit ratings given to MBS on the basis of risky subprime mortgage loans. In other words. In 2011.4 below. with an additional 14% (1. Congress passed the Alternative Mortgage Transactions Parity Act (AMTPA). The 2006 decline in investment buying was expected: "Speculators left the market in 2006. which allowed non-federally chartered housing creditors to write adjustable-rate mortgages.07 million units) purchased as vacation homes.

2 USA and sub-prime crisis ³In the words of Mark Twain (1897) which are like this: the collapse of one financial system is like one man is dying.4: Credit rating agencies downgraded ratings 2. which was more about having more investments from the foreign government and this had brought it on the end. This system requires high amount of investments in the US by foreign governments and individuals. 16 . The major impact of this crisis was on the Bretton Woods II. It has doubt that the required faith in the US economy and financial system can be maintained in the face of the dismal performance of US assets and institutions in recent months. then another and then another and you can¶t deny that all the systems are dying as collapse of the one system´.Sub prime crisis and its effects on Northern rock bank Figure 2.

an outburst of protectionism. reserve diversification away from US assets. a general jump in real interest rates. the danger generated and the temporary compression of risk was confused with permanent changes. a massive depreciation of the dollar against managed currencies.Sub prime crisis and its effects on Northern rock bank Now the question arises that how did the current crisis develop and it made the whole financial system collapse of US as well as whole globe. The potential crises that they have emphasized over the years were: an end to official intervention in exchange markets. Since the premium available to investors as reward for risk associated with maturity transformation disappeared while the demand for spread persisted. This is not such type of crisis which has direct impact on the globe but gradually it has made the conditions so worst that the whole globe and the banking system got affected in the crisis and it had brought a major recession for the whole globe. a rise in oil prices. Figure 2.5: US current account Initially the lowering rates of interest and home loans encouraged to get more people home loans but after some times. the financial system was rewarded for supplying the spread product 17 . or a geopolitical event. but because of this process. How did the current crisis develop and break out in the context of Bretton Woods II dynamics? This is not the sort of crisis that many economists have warned would trigger a collapse of the system.

Figure 2. 18 . To manufacture spread for those financial institutions that needed it.6. the financial industry tapped into a new high-risk class of borrowers. These types of crisis has made the assets less desirable as the problem assumed that the sub-prime crisis will generate the act two problem which can disintegrate the international system as the US assets can be further depressed as the equilibrium risk free interest rates.5 shows that the current account of the US and its percentage to GDP.6 shows the position of different indexes for the year 2008 and it can easily show the impact of the sub-prime crisis and its effect on the different indexes.6: Trade weighted dollar and Euro The impact of the crisis had been shown in the figure which shows that the year 2007 has faced the lot of depression in the value of dollar which had sustainably improve in the next year.Sub prime crisis and its effects on Northern rock bank in some other way. These all crisis had not made the dollar doomed very much which can be seen from the below Figure 2. Figure 2. The following figure 2.

which had started with valuation confusions of home loan and housing products. the deepening of liquidity troubles.Sub prime crisis and its effects on Northern rock bank Figure 2. y y y made a lot of decline in securitization. brings a lot of reduction of leveraged bank and investment bank positions. 19 . withdrawal of banks¶ credit lines. further price reduction of the structured products in the portfolio.7: Major stock index in 2008 The financial turbulence. started to develop into a market and then it leads to a funding liquidity crisis: y losses on and valuation confusions of CDO products in the market. the start of the funding liquidity crisis. crunching market illiquidity. y difficulties in issuing by bank-sponsored funds (conduit. SIV) financing the CDOs ± decline in funding liquidity.

Americans had lost around a part of the quarter of their net worth.Sub prime crisis and its effects on Northern rock bank In this manner. 2007 it has started affecting the financial sector in the whole globe.3 Sub-prime crisis and its Impact The sub-prime crisis had a very adverse impact on the financial conditions of the US as well as the whole globe. This had not only shown the adverse impact on USA and its banking system but the whole globe¶s banking system got affected of it. which was valued at $13 trillion at its peak in 2006. was down 45 percent from its 2007 high. By early November 2008. had dropped to $8. another self-perpetuating process of contagion started. After Feb.the statistics for showing the impact is as follows: y y the S&P 500.8 trillion by mid-2008 and is still falling in late 2008. y Housing prices had dropped 20% from their 2006 peak. 20 . jeopardizing both market and funding liquidity through the bear market and deleveraging. 2. Total home equity in the United States. Between June 2007 and November 2008. with futures markets signaling a 30±35% potential drop.

more than 100 of mortgage companies shut down. During 2007. in 2008 which is the largest bank has reported the first major loss because of the crisis. In 2008. IMF) HSBC.10 will show the impact of sub-prime crisis on the whole globe.Sub prime crisis and its effects on Northern rock bank Figure 2.8: Loss of financial crisis as a proportion of GDP (Source: Honohan±Klingebiel (2003). when Lehman brothers and other very important financial institutions failed. 21 . Following Figures 2.8.9 and 2. it made a shock to whole global economy and financial system. Hoggarth±Reis±Saporta (2001). US and UK. 2. suspended their operations or sold out.

Sub prime crisis and its effects on Northern rock bank Figure 2.10 illustrates the liquidity crunch in the whole liquidity index which shows the ripple effect that emanated from decreasing confidence in and default rates for US sub-prime lending led to a global tightening in money markets which then trickled down to UK housing markets in the middle and latter parts of 2007 and this effect continues into 2008.S.9:U. 22 . Bank Earnings (2004-2008) Figure 2.

Merrill Lynch. Bear Stearns and Merrill Lynch were taken over by other companies. 23 .) This crisis had an adverse impact on many major financial institutions which were either failed. bailed-out by the government or merged during the crisis.Sub prime crisis and its effects on Northern rock bank Figure 2. Chicago Board Options Exchange. As a result of crisis in 2008.10: Financial Market Liquidity Crunch (Sources: Bank of England.S. These are the firm which had typically borrowed or invested large sum of their money or cash equivalent or relative to equity capital. Thomson Data stream and Bank calculations. investment banks which include Lehman brothers. five largest U. London Stock Exchange. Debt Management Office. Bloomberg. twenty-five US banks became insolvent and which were being taken over by FDIC. During 2008. Goldman Sachs and Morgan Stanly were bailed out by the US government.

Sub prime crisis and its effects on Northern rock bank 2. representing approximately 81% of the UK market´(FTSE International. Figure 2.4 billion pounds to 113. The major flaws in the financial system of UK are as: there was a serious flaw in deposit schemes of UK which led to the country to this problem. From June 1998 to June 2007. in the bank of England. which ³comprises the 100 most highly capitalized blue chip companies.4 Sub-prime crisis and its Impact on Northern Rock Northern Rock is a substantial banking institution within the UK having been a member of the FTSE 100. 2008).11: Composition of Northern Rock¶s Liabilities The major reasons for the liquidity risk and the crisis for the Bank were because of certain institutional weakness in the UK¶s regulatory regime which made happen such types of the problems. no established special bankruptcy regime for banks . in the nine years. its total assets grew from 17. Northern Rock had very large ambitions.2%. since September 2001 until its removal to the FTSE 250 in December of 2007.5 billion pounds with an annual growth rate of 23. there was no well-established or 24 . Northern Rock started its life as serving local clientele.

an institutional structure of financial supervision that separated responsibility for systemic stability and lender-of-last-resort from prudential supervision of individual banks and these are the banks which were located in the financial authorities. the bank was unable to repay the loans from the money market which has been raised from securitization. The funding gaps and securitization has been made wider by looking for better deposits rates and which brought mortgage lending crisis conditions for the UK wholesale market. to replace funds it was unable to raise from the money market. Problems started emerging in summer 2007 when there started lack of confidence in the sub-prime mortgage market in the USA and this created the doubts in the business model of Northern Bank. in the first half of 2007 its new mortgage lending accounted for around one-quarter of the total in the UK. all had started for the same to get their money back and the scenario has been shown in Figure 2. 25 . In August 2007. Money market operations of the Bank of England.Sub prime crisis and its effects on Northern rock bank predictable resolution regime for handling troubled banks. This has brought a tragic event in the history of UK and global banks in these last 150 years where all the depositors were standing outside to the bank to get its deposits back as they had a fear not to get what had in their savings and seeing others. The arrangements made by the banks for insolvency conditions. On 14 September 2007. Northern Rock had assets of over £ 100 billion in the ten years from the establishment to the crisis year which shows the growth rate of 20 percent. y y y y y UK¶s policies for deposit protection. These all brought very likely to be potentially hazardous in crisis conditions. The institutional structure of financial regulation and supervision.1. Although it was only the seventh largest UK mortgage lender. Practices used by banks for corporate governance. Northern Rock Crisis can be seen from the multidimensional perspective and the fault line can be seen with respect to following issues: y The implications of securitisation and a consequent over-reliance on short-term market instruments. These problems were more anticipated by the financial markets which became very publicly and the bank was on the urge of the solvency. the bank sought and received a liquidity support facility from the Bank of England.

4m for the first 6 months of the year and that £9. The report also outlined further details of their proposed business plan.The worst conditions arose when the shares of the bank were delisted.12 At the time of the failure of the Northern Rock Bank. The government bank made an attempt to find a private market solution and bids 26 .Sub prime crisis and its effects on Northern rock bank The USA deficit which began to expand latter half of the 1990¶s whereas the Asian developing economies are seeing as current account surpluses expand. Figure 2. In the annual report for 2007. but the crisis conditions of the bank in 2007 had brought it on FTSE 250. the bank occurred loss of £167 million.5bn which can be clearly depicted by Figure 2.12: Northern Rock Share Prices Prior to the subprime mortgage crisis the bank was part of the FTSE 100 Index.4bn of a loan from the Bank of England had been paid back. reducing the amount owed to £17. Further reports about the profitability spoke that the bank announced that it had made a loss of £585. the Bank of England tried to find a private buyer. which was published on 31st March. This is known as global imbalance and these all situations saw a problem for the whole financial system and which later on affected the whole globe and brought global recession.

There were no satisfactory bidder present for the purchasing of the bank and the government of England made a decision to temporary basis nationalized the bank. The buyer has to inject new capital in the bank. the bank of England had used an Ad hoc british bank mechanism. and Bidders needed to present a viable business plan. 2. It had brought a conflicting problem to the bank and the board of directors as the assets values for the valuation of the bank seems and finds to be zero and the payment of the invested money can be made by the deposit money of the bank of England and that was the only way for the bank to get it safe and in the picture again. The following words of Governor of Bank of England. 27 .5 Nationalization of Northern Rock As mentioned in the last section of the literature review about the crisis situation in the USA and UK and its impact on the Northern Rock Bank and the insolvency condition of the bank. as argued below. the attempts made by the bank to attract any private buyer for the bank and at the end the Northern Rock was being nationalized by the Bank of England. Mervyn King has made the situation and the scenario very clear which was : The bank should help Northern bank in trouble and should try to get the confidence back of the customers and it is possible only when the banks will be co-opearting and the strategy of the bank should be to look for the interest rates which can help them to get the money back when the situations and the conditions will be in the hands. For qualifying the buying of Northern Bank. This was one of the biggest nationalizations ever undertaken in the UK and. the four particular conditions were set by the government which was: y y y y The government will have a share in any upside gain to the buyer. Within three years the buyer has to make the repayment of Bank of England loans.Sub prime crisis and its effects on Northern rock bank were invited. The commission from the top of the bank of England took first priority to make the decisions for the pricing and the valuation of the share of the shareholders.

9 billion at the end of 2007. the Treasury saw fit to allow the company to write around £750 million of high risk loans of up to 125% of the value of the property. 2007. but the pace with which it acted to remedy these shortcomings was leisurely. Standard¶s and Poor¶s had made a credit rating and revised the rating for Northern Bank as positive and some more good news indicated the better and recovery condition of the bank as in 2009. the Bank of England has made a debt reduction strategy. In 2008. the Bank of England has made a decision to make the bank nationalized bank. A government panel had been appointed to decide a fair price for the compensation to be offered to the investors of the share.5 billion of the loan that stood at £26. Northern Bank had announced that it should use the measures that will help it to reduce bank debt within three to five years. the bank made the announcements of successfully getting the targets of paying the loans to the government. The very important recovery was being made as in October customers appeared to be regaining confidence in the bank. the Treasury did not know enough about what it was taking on. People appeared to see Northern Rock as a 28 . government set up a new company named UK financial investment ltd to manage their share holding in Northern Rock. This analysis suggested that public ownership represented the best alternative in terms of value for money. owing a net balance of only £11. y At the time it nationalised Northern Rock. when it emerged that there had been a surge in the number of new accounts which had been opened. As of 30 September 2008 the bank is repaying the loan well ahead of target. the bank had announced to give 10% bonus to its employees as the bank is performing well in respect of paying its loan back to the government. Then in 2008. To get the things well settled.Sub prime crisis and its effects on Northern rock bank Finally in September. The nationalization decision can be interpreted by the help of following conclusions: y The Treasury¶s decision to nationalize Northern Rock in February 2008 was based on a comprehensive assessment of the options available to it. In year 2009 and 2010. y The Treasury had been aware of shortcomings in the arrangements for dealing with a bank in difficulty since 2004. y Despite the enormous problems facing Northern Rock during the period of emergency support.

As the literature showed that the bank was performing well in the year 1998 to 2007 but the flaws in the government regulations. The bank decided to remove some of their savings products from the market. and financial innovations bubble²for delivering longer phases of high economic growth. To safeguard the interest of the citizens and the customers and investors of the bank. commodity price bubble. This crisis had made the another opportunity to the all the entities ranging from IMF. A major source of financial crisis has identified as excessive dependence of policy makers on bubbles²starting from credit bubble to asset price bubble.5% share of total UK retail deposits. This turmoil and the case had given a lot of suggestions to policy makers and compel to think about the issues related to financial market. regulators have increased their faith in ratings and models for their financial stability assessments. The scenario of the performance of the bank before the crisis. 2. which at best create illusory comfort. as the bank has a commitment to take only a 1. The generalized global policy response²in the form of grand bailout plans funded by larger government debt raised at very low interest rates²could fuel another bubble. which may become a source of risk and concern in future. at the risk of leaving the dangerous impression that risk has been assessed correctly. some mistakes by the management of the Northern Rock and some global conditions had brought the worst conditions for the Bank and it became a historical case for the administrators to be look into it. at the time of crisis and after the nationalization of the bank had been shown with the help of lots of figures in the main body of the chapter which clearly depicted the impact of the crisis on the performance of the bank.6 Key Issues identified from Literature The literature discussed above showed the reasons for this crisis. international rating agencies. The sub-prime crisis revealed that the sellers of insurance against default and the rating agencies jointly could convert poor quality 29 .Sub prime crisis and its effects on Northern rock bank safe place to put their money. national central banks and regulatory authorities and led them to bring the architecture. At the same time. it was a very wise decision of Bank of England to make the bank nationalized bank. the impacts of the crisis and the management and government decision to make the bank nationalized. given the current status as a nationalized bank which cannot fail. in government bonds and debt. standard international setting bodies for financial sector.

30 . The analysis and conclusion will help to make the recommendations and the conclusion.Sub prime crisis and its effects on Northern rock bank paper into the most sought after financial instruments. This all seems to be very helpful for carrying out the study further where the report is going to deal about the research methods and techniques going to be used for the analysis of this descriptive study. while bonus-driven investment bankers have an incentive to sell these products.

e. i. measuring the number of times someone does something under certain conditions) or qualitative (for example. i. observation and/or experiments. Objective. usually due to time and financial constraints.g. usually encompasses the procedures followed to analyze and interpret the data gathered. representative research can be difficult to conduct because tests can normally only be conducted on a small sample (e. This is called the study design and typically involves research conducted using questionnaires. This means that researchers need to have a very detailed understanding of the types and limitations of research methodologies which they are using. The term research methodology. Part of the research methodology is concerned with the how the research is conducted. A good design should ensure the research is valid. Research methodologies are generally used in academic research to test hypotheses or theories. Ideally. It yields consistent results every time. comprehensive research should try to incorporate both qualitative and quantitative methodologies but this is not always possible. You cannot test a drug on every person in the world so a sample needs to be used in research). interviews. and that the research is reliable. also referred to as research methods. These often use a range of sophisticated statistical analyses of the data to identify correlations or statistical significance in the results.Sub prime crisis and its effects on Northern rock bank Chapter 3 Research Methodology Research methodologies can be quantitative (for example.e. It clearly tests the hypothesis and not extraneous variables. 31 . asking people how they feel about a certain situation).

In the making of this research the data which is used.( Hm Treasury 2007) In this chapter first we will be introduce with the little picture of the research aims and objectives that is why the research has been taken into the consideration.Sub prime crisis and its effects on Northern rock bank Research is thoroughly based on the study on particulars topic. While doing a research it is vital to do it with the past and the future data. It is a structured investigation to find out the solution for the current problem that we are facing. The basic aim for the each and every research is to find some solution and enhance our knowledge based as well. management. There is needed to be unwrapped mentality to do a research. There are two types of research those are primary and secondary. is both type of data primary as well as secondary. 32 . we will come to find out the solution for the northern rock bank with respect to subprime crisis. those are qualitative and quantitative. In today¶s world to take decision various studies are helpful to provide information to us. It is the improvement of technology as well as human intelligence. In this case. The works will be done with the various sources to collect the significant data. To tests the possibility of the solution whatever we found. through the research one can develop novel knowledge. The research which constructed to find out novel problems. it is pre structured known as exploratory research while the constructive research finds solution for the difficulties. Novel techniques are as the solution of existing problem. Before research methodology we have research to know these views of literatures. It can make by applying scientific technique. So we can find the significance of research easily. it is all about searching for knowledge. organization customers and readers as well to have a handle on the causes to adopt the research approaches. This gives several types of themes to get solution for our problem. Research is used to improve existing facts and psychology. Two types of method applied in the research. It will be helpful for the respective persons. This chapter is consists of the method that will be taken to study the difficulties which are coming in the Northern rock bank due to the subprime crisis in the US. It is search for data through research we gather the relevant information. A structured study availed us with the various types of knowledge to get bottom of all operational difficulties. the empirical research used.

REASERCH APPROACH There are research methodologies known as primary research and secondary research. lab experiments. phone interviews and direct observation. With primary research. the views of literature have been taken for the study to explain definite difficulties in the research. surveys and other methods of information gathering. there are several basic ways that data can be collected. There are plenty of ways to get this data. Primary research involves collecting data that does not already exist while secondary research take existing research data and analyzes it. The researcher can then customize how they want the research to go and how long it should take. There are two types of approaches have been taken shoes are quantitative approach and qualitative approach as well. including through questionnaires. After an issue has been identified. Quantitative research gathers data through work in the field. To conduct a perfect research.Sub prime crisis and its effects on Northern rock bank The strategies for the research will be executed in the research and the method of data collection also includes in this chapter. Research approaches are concern with the series in which research has been made and the techniques which have taken place in this specify research. first there is need to examine the entire factor through which researcher becomes capable to give the solution for the problems here. interviews and observations from people participating in the interviews and group sessions. 33 . The advantages of primary research are control over the information that is collected. primary research is used to collect some secondary data after the researcher has gotten a little insight into what the problem or situation is. First is through Qualitative research: Which can include focus groups.

Quantitative research: It is a way to collect data using scientific methods like creating models. but this will give you a rough idea of what it is all about. Qualitative research will helpful to built a model and make the methods to bring the solution of the problem. the techniques and the methods that will be applied in the research are called qualitative approach. This strategy has been used to make sure that the facts and figures have been taken in detailed to make the dissertation. The process can also take a long time since the data must be researched instead of just having secondary data already available. all the data the researcher collects belongs to them. We have gathered the information to analysis the facts and figures. the findings may already be outdated by the time they are derived. Since it takes some time to do the research. those results must be evaluated. The various types of methods are calculated in the research and after the analysis the proper method will be opt. we will come to know the several results and then we have to obtain best method among the all method of investigation. There are also some disadvantages such as cost. In order to find primary data. This study will ensure that the 34 . So it is suggested to use research methodology. the proper technique should be used then only the collected data would be the perfect data. Then the dissertation has some structured method and predetermined technology. It is the collection of empirical data and the modeling and analysis of that data. hypotheses and theories. This is a much more complicated process than what it appears. Generally the data will be collected through the individual RESEARCH STRATEGY: Dissertation has some technology and elements in the research structure. The both approaches will be use full the act against the particular problem. Qualitative data supports the primary data for the study. the research can get pretty expensive. After all the research turns up results. A thoroughly study used to determine the method of sampling and size of sample also taken with full of awareness. When the data will be collected for the research that can be primary data is known as quantitative research. To gather the proper data. After this the research will be executed.Sub prime crisis and its effects on Northern rock bank Not only that. In the research objective has also determined so they can find the approval and conclusion in the easy way. A proper research need to have both type of content.

This research includes the human factor and the characteristics of human is non predictive in nature. ALTERNATIVE RESEARCH STUDY A researcher can use the various sources to find out the result. Because of there are so many factors affecting examination in the BPO segment of IBM. way of 35 . For example there can be survey.Sub prime crisis and its effects on Northern rock bank methodological investigation has been taken to appropriate method of research and then to come on desired result. There are distinct basics of this study. It means there can be many strategies and methods which can be apply in the research. In this research scientific technique has taken place as center of attention. 2009) EXPERIMENTAL RESEARCH STRATEGY This is the strategy in which there are several types of circumstances can be obtained to do experiment on. This is fully structured research based on well designed association. The experimental research is not suitable for the topic related with attrition rate.(Charles. structured action etc.

We will analyze the data whatever we have been collected to make decision . to pass information on to others. The method are also specified when we are researching a particular topic. Survey includes either all the people related with the problem or some of the people among them.Sub prime crisis and its effects on Northern rock bank thinking. so we only bring some of the people to conduct a survey. Types of data collection 1-By mail questionnaires 36 . The process provides both a baseline from which to measure from and in certain cases a target on what to improve. The main aim is to find the solution of our problems through the data. DATA COLLECTION It is the course of action to gather the data. they give importance to the relation with people. So the research cannot go with this research. A formal data collection process is necessary as it ensures that data gathered is both defined and accurate and that subsequent decisions based on arguments embodied in the findings are valid. data is collected to provide information regarding a specific topic. But in this case we cannot take the survey of the all people of the Northern Rock Bank.for example as part of a process improvement or similar project. to make decisions about important issues. SURVEY RESEARCH STRATEGY Through the survey we come to now the current scenario related with the study of the specify topic. The purpose of data collection is to obtain information to keep on record. Data collection is a term used to describe a process of preparing and collecting data . the data is need to be analyze and the proper way should be taken to gather the data. Primarily.

Primary data has been made of the individual interviews. this study can give proper description for the causes and effects. (Janet. Here. To get the primary data the method used are qualitative and quantitative methods. sample survey. A sample survey is a data collection method that includes only part of the total population and has advantages. Exploratory research has used to study available data. Descriptive research used to know answers of the questions. A census refers to data collection about everyone or everything in a group or population and has advantages. such as accuracy. questionnaire and group examination. Secondary data is used to support the primary data. The dissertation is also made of exploratory research. The full information can get through the primary and secondary data. it is very necessary to know the fact from them and structured information through the detailed interviews. In this case the study all and all can be classified as descriptive research. Administrative by-product data is collected as a byproduct of an organization¶s day-to-day operations and has advantages. The data can be gathering through primary research method or secondary data research method as well. such as accuracy and detail. time simplicity and disadvantages. This research is also called as statistic research. such as cost and time and disadvantages. it is vital aspect to gather proper data. This will give us whole information in detail. A researcher has to use both of the method to gather the proper data for the research.Sub prime crisis and its effects on Northern rock bank 2-By personal interview. Other main types of collection include census. and administrative by-product and each with their respective advantages and disadvantages. such as no flexibility and lack of control. such as accuracy and detail and disadvantages. In this case. There are two types of sources used in the research. An exploratory research may not make us come to take any decision but it is very helpful to get important review on the given circumstances. what we are searching for. descriptive research used on all and all that can be studied. There are so many limitations also. such as cost and time. To conduct any of the research. 1999) 37 . In this case. But the descriptive research is appropriate for the study. This includes unstructured communication with consumer and management.

Data collection is very important process. In this case published data can be used as the secondary data or the data which have been not published also used in this. Secondary data gathers from the primary data sources and it saves lots of time. Secondary data also has some draw backs. each and every research demands for data. Cost of secondary data will be so less. The primary data is the specify data according to their needs. Here. The researcher needs to gather some of the data with originate. When the researcher gathers the data which is not structured and from the original source then it is called the primary data. Secondary data can be available easily. Secondary data is already structured data. the various sources or tool to gather the data have been described. Analysis is conduct on the data which is collected. Selection of a data collection method is depending on the type of research. Secondary data is used to support primary data. Many times researcher gathers the data from the secondary data sources. the journals and magazines can also use to gather the data for the Northern Rock Bank and the effect of Subprime crisis on it. There is no one who can suggest a particular method. So the research can be conducted with the people who has been affected by this crisis and the management of Northern rock Bank. Some communities or organization works for that type of research. This data may be the data which have been not gathered before. The form can be any type of according to researcher. The records which a firm can bring as the data. Means it has been gathered already by some else and we are going to gathering from them. It will also take much time. Data can be collected through several techniques. That topic can be any type of issue. Normally the common data can be useful in the related research. bureau of public enterprise and census reports and government data will be work as secondary data. the issue is subprime crisis and its impact on the Northern rock bank. So it is vital to gather right data from the appropriate sources. The advantage of the secondary data is that. It can be too costly to search primary data. that the data might be not the latest.Sub prime crisis and its effects on Northern rock bank To study. The primary data has been collected for the particular research topic. it is already structured so there is no need to construct them. In this case. The secondary data can be provided easily for the research. First one has to do comparison analysis among the methods and 38 . Here. These data are structured information that a researcher can use in the research. But sometimes it is vital to do this research.

The focus should be on the subprime crisis and its effect on the bank sector.e. Observation can be conducted directly or indirectly. OBSERVATION Observation is related with the viewing something properly. the analysis can be done. especially on the Northern Rock Bank. (Kvale. The observation method can be very useful method if the research and the observation have been structured. though it is usually more difficult to interview on a meaning level. (McNamara. An appropriate selection of the method is requirement of the research. Observation can be controlled and out of control as well. INTERVIEWS The qualitative research interview seeks to describe and the meanings of central themes in the life world of the subjects. Unlike with mail surveys.g. So the data can be gather for the specify research. the observation can play huge role. The main task in interviewing is to understand the meaning of what the interviewees say. It can start informally.1996) Interviews are particularly useful for getting the story behind a participant¶s experiences. Interviews may be useful as follow-up to certain respondents to questionnaires.1996) A qualitative research interview seeks to cover both a factual and a meaning level. Through the structured observation of the situation in the US can be observed. Observation may have not the particular reason. After seeing the circumstances. In this case. Interviews are a far more personal form of research than questionnaires. the interviewer works directly with the respondent. In the personal interview.Sub prime crisis and its effects on Northern rock bank then the method can be chosen. So the researcher can obtain more than one method to gather the data.. to further investigate their responses. The view has been done for opt something from the situation. But this is not the method just for entertainment. 39 . The interviewer can pursue in-depth information around the topic. the interviewer has the opportunity toprobe or ask follow up questions. (Kvale.1999) IMPORTANCE OF INTERVIEW y y y y Interviews are completed by the interviewer based on what the respondent says.

In the case. especially if what is sought is opinions or impressions. It is two ways communications which have take the place for a particular study. the researcher is interviewer and the respondents are the interviewee. Interview should be focused on the one topic. If there is sufficient time then the individual interviews will take place for more appropriate feedback. If the 40 . D. (Masciandaro. For the qualitative information. The interviews depend on the researcher that what type of interview they want to hold. Interviews also have the one to more than one ratio. But also there can be unstructured question during the interview as per the situation. The interviewer is considered a part of the measurement instrument and interviewer has to well trained in how to respond to any contingency. There can be personnel interview in which the ratio will be one to one.Sub prime crisis and its effects on Northern rock bank y Interviews are generally easier for respondent. It can be structured or unstructured. The respondents give answers according to their past knowledge and future expectation. Interview can be in the form of direct or telephonic. Usually some of the important questions are preplanned but there can be unstructured as well as per the situations. The interview can be formal and informal and it also can be a mixture of both types of interviews. The interview includes answers of the questions and the observation from the signs and the facial expression. When the number of qualified interviewees is in sufficient range then the interview can be conduct. For the interviews the questions have already designed to know desired result. So it is based on the type of research. 2003) Interview can take place in a research as the primary method or the supporting method. y y Interviews are time consuming and they are resource intensive. In this research time is also an important factor. Interviews are same as face to face conversation. It gives quick response from the respondents about their opinion on the problem and the belief on the recommendations. this method is used. It is best method for the research where the respondents are less educated. In the view of some researcher the interview method is better than other methods to gather the data. It is communication between the interviewer and the interviewee. Respondents also interested to be with the oral conversation than the written. It is the vital method to gather the data.

Sub prime crisis and its effects on Northern rock bank interviewer is intelligent then he can read the face of the respondents and conclude some novel theory. It is conducted when the interest of respondents are common. Then start the interview. When the time is less and interview need to be conducted then the group interview can be hold. We have to prepare question with respect to our topic. A well-designed questionnaire that is used effectively can gather information on both the overall performance of the test system as well as information on specific components of the system. Although questionnaires may be cheap to administer compared to other data collection methods. QUESTIONNAIRE: Questionnaires are an inexpensive way to gather data from a potentially large number of respondents. who has proper knowledge about the issue. The steps required to design and administer a questionnaire include: Defining the Objectives of the survey 41 . record it and close it with thank. Every step needs to be designed carefully because the final results are only as good as the weakest link in the questionnaire process. Often they are the only feasible way to reach a number of reviewers large enough to allow statistically analysis of the results. It is important to remember that a questionnaire should be viewed as a multi-stage process beginning with definition of the aspects to be examined and ending with interpretation of the results. Then make the connection with the respondents. Interview can conduct with the several of modes: Telephonic interview is the time saving method. they can be used to correlate performance and satisfaction with the test system among different groups of users. If the questionnaire includes demographic questions on the participants. they are every bit as expensive in terms of design time and interpretation. Then the researcher should give the introduction of the issue. It can be called the non-personnel method. For the interview process it is necessary to prepare question first.

but the cost of such a questionnaire can be much higher and offset their economic advantage. We can classify data in two ways. Any question must be carefully crafted. the researchers control over the environment will be somewhat limited. Consequently. it is likely that they will be biased towards themselves and answer. of the system or interface in question. In general. such as user satisfaction. however they are not equally suited to measuring all types of data.Sub prime crisis and its effects on Northern rock bank Determining the Sampling Group Writing the Questionnaire Administering the Questionnaire Interpretation of the Results What can questionnaires measure? Questionnaires are quite flexible in what they can measure. For example. For example. quantitative questions are more exact then qualitative. Objective and Quantitative vs. Subjective vs. More elaborate questionnaire design or administration may provide slightly better objective data. the word "easy" and "difficult" can mean radically different things to different people. but in particular questions that assess a qualitative measure must be phrased to avoid ambiguity. A more objective usability test of the same function with a similar group of participants may return a significantly higher learning time. This is why questionnaires are inexpensive to administer. When a questionnaire is administered. if a group of participants are asked on a questionnaire how long it took them to learn a particular function on a piece of software. questionnaires are better suited to gathering reliable subjective measures. This loss of control means the validity of the results are more reliant on the honesty of the respondent. it is more difficult to claim complete objectivity with questionnaire data then with results of a tightly controlled lab test. on average. Questions may be designed to gather either qualitative or quantitative data. with a lower than actual time. Qualitative questions may also require more thought on the part of the participant and 42 . By their very nature. Qualitative.

In general.Sub prime crisis and its effects on Northern rock bank may cause them to become bored with the questionnaire sooner. soundness and time control. we can say that questionnaires can measure both qualitative and quantitative data well. This stage include the methods and procedure. which will give us the analyze data. and interpretation. 43 . And hence this research which will not be towards a perfect conclusion of the opearations of the Bank. Through the research we will come to know the impact of Subprime crisis on the Northern Rock Bank. The qualitative and quantitative data will be helpful to get desired outcome. The data analysed here in this research was meagerly based on the information gathered by the respondents. The research is based on various types of observation.(Roubini. 2009) LIMITATIONS OF METHODOLOGY A good research must have some critical factor those are consistency. administration. but that qualitative questions require more care in design. In the inductive research highly thinking is necessary to get outcomes. STRENGHS OF METHODOLOGY Through the methodology one can come on the facts and figure on form the saw data. It will be difficult to develop the conclusion from the comstomers and the management who might be bias toward their way own view towards the problem of the Bank and the operations. The method should be free of any type of biasness.

Having failed to find a commercial buyer for the business. Along with many other UK building societies in the 1990s. Since 1 January 2010 the Northern Rock name has referred to two companies and a separate asset company. not just by current members. the bank was formed in 1997 when the society floated on the London Stock Exchange. the Northern Counties Permanent Building Society (established in 1850) and the Rock Building Society (established in 1865). Northern Rock plc. to be able to expand their business more easily. Formerly the Northern Rock Building Society. and that demutualisation was a betrayal of the community that the societies were created to serve. best known for becoming the first bank in 150 years to suffer a bank run after having had to approach the Bank of England for a loan facility. Northern Rock chose to address these concerns by founding the Northern Rock Foundation. it was taken into public ownership in 2008. It is based at Regent Centre in Newcastle upon Tyne. Northern Rock Building Society was formed in 1965 as a result of the merger of two North East Building Societies. Northern Rock (Asset Management) plc. During the 30 years that followed. At its Stock Exchange flotation Northern Rock distributed shares to members with savings accounts and mortgage 44 . most notably the North of England Building Society in 1994. to replace money market funding. Northern Rock chose to demutualise and float on the stock exchange. Throughout this period a concern against demutualisation was that the assets of a mutual society were built up by its members throughout its history. United Kingdom. during the credit crisis in 2007.[ this bank.Sub prime crisis and its effects on Northern rock bank Chapter 4 Analysis & Interpretations INTRODUCTION OF NORHTERN ROCK BANK Northern Rock plc (former London Stock Exchange ticker symbol NRK) is a British bank. Northern Rock expanded by acquiring 53 smaller building societies.

The media also reported cases where some shareholders had their life savings in the shares. The bank was nationalised at 00:01 on 22 February 2008 as a result of two unsuccessful bids to take over the bank. assets and banking. Northern Rock gained promotion to the FTSE 100 Index. On 14 September 2007. These will help to formulate the research objectives and this will help to carry forward the research. which were taken from them. It joined the stock exchange as a minor bank and was expected to be taken over by one of its larger rivals. In June 2011 the bank was officially put up for sale back to the private sector. during the financial crisis of 2007±2010. In 2000. The research questions aimed in this study are as follows: y How the sub-prime crisis had an adverse impact on the operations of Northern Rock Bank? y What were the issues confronting the management at the Northern Rock during the subprime crisis? y What decisions the management has taken to overcome the situation raised due to subprime crisis? y What the suggestions can be put towards management to better handle such type of turbulent situations in the future? 45 . but it remained independent. all the aspects would be shown that have been taken for the research. following problems in the credit markets caused by the US subprime mortgage financial crisis. The chapter analysis and findings includes several types of method with respect to qualitative research which is vital for the study. and as of October 2009 without reimbursement. In doing so the Government effectively took ownership away from its shareholders. neither being able to fully commit to repayment of taxpayers' money. On 1 January 2010 the bank was split into two parts. the Bank sought and received a liquidity support facility from the Bank of England. but was demoted back to the FTSE 250 in December 2007 and later suspended from the LSE due to the bank's nationalization. Here. THE QUESTIONS WITH WHICH WE WILL PREPARE QUESTIONNAIRE It is very important to find out what the research questions are being undertaken in the study.Sub prime crisis and its effects on Northern rock bank loans.

There should be a copy of the original information and it will be better if that would be in the several variables and syntax. Novel characteristics can be suggested through the exploratory data analysis. Here. descriptive and confirmatory. It is the process in which we will convert the incorrect data into the correct one. It can be only when we are on in the first stage of the data analysis that is the entry of the data.Sub prime crisis and its effects on Northern rock bank DATA ANALYSIS: Data analysis is nothing but a process in which we have done the concentrated effort on the transforming. In the data analysis there are levels with all sides of the technique involved in it with the various themes. There is a data analyzing technique that is called data mining. When the data comprises a structured ordered then the primary information can be gathered. It is vital to analyze the data to get the desired result. There can be thoroughly filtering in the process of analyzing the data and the proper center of attention is required for the process. those are exploratory. Through the analyzing we can get the final crux to take the needed decision for the improvement of the Northern Rock Bank. All the information should be held and keep it safely for the future requirement. 46 . Organizational information can be collected through Business intelligence. The originator for the data of the analysis is the data integration. In the data mining technique which is used is not for the explanation only but it focuses on the knowledge projecting. there is a lot of levels to analyze the data. To know the class of the data and find the take out text analytics can be applied. the only objective is just find the appropriate information and analyze them to get proper result. Confirmatory analysis is for the analyzing the hypothesis. With the data analysis we can convert the unorganized data into the organized data and it reveals the data in the information. There are many types of the application.

first there is need to examine the entire factor through which researcher becomes capable to give the solution for the problems here. When the data will be collected for the research that can be primary data is known as quantitative research. Qualitative research will helpful to built a model and make the methods to bring the solution of the problem. To conduct a perfect research. There are two types of approaches have been taken shoes are quantitative approach and qualitative approach as well. The initial analysis is refined of the whole analysis. the views of literature have been taken for the study to explain definite difficulties in the research. In the main data there should be exploratory and the confirmatory approaches. the approaches should be decide before the data is gathered. This is the analysis where the researcher gets conclusion over the questions whatever has been asked. Qualitative data supports the primary data for the study. Here. the techniques and the methods that will be applied in the research are called qualitative approach.Sub prime crisis and its effects on Northern rock bank Initial data analysis and the primary analysis have different features. Main data is the most important data analysis. 47 . the initial draft has made by the this analysis for the research. There must be the proper instrument for the measurement of the quality. Generally the data will be collected through the individual interviews and questionnaire. This includes the excellence of the data. The both approaches will be use full the act against the particular problem. The goal is to take initial data consideration analysis of the research questions. A proper research need to have both type of content. Research approaches are concern with the series in which research has been made and the techniques which have taken place in this specify research.

569 Closing balances 62.co.789 26. There was a comment by some bank analysts that the Bank has to shut the doors.523 2.853 1.uk/ £m 2006 Gross Net Residential Commercial Unsecured Total 28. The people had taken the loan in the over draft and they became insolvent when the bank asked for the recover the loans.621 86. At the time of the crisis the huge investment get back. There were a lot of drawbacks but the primary one is there was not a proper management of holdings and lending as well.200 5. If there were enough retail investment so there would be something in the hand.618 13.277 32.257 secured residential mortgages 48 . So the researcher found the problem of the management. The nature of Northern Rock Bank was low risk but it rapidly converted into the mixed assets that are the secured residential mortgages. This crisis not only affected for the US but also the whole world. Here.292 2005 Gross Net 23. It has to be sold itself.555 69. They have one month to manage the selling of the Northern Rock Bank.350 408 5 1. we are going to analyze the minus points of the bank of UK that is Northern Rock Bank.879 14.491 7. The nature of Northern Rock Bank was low risk but it rapidly converted into the mixed asses that are the secured residential mortgages. The Bank was involved in the bulk collection but the appropriate thing was to gather both types of operations large as well as from small retailers.northernrock.Sub prime crisis and its effects on Northern rock bank ANALYSIS OF NORTHERN ROCK BANK INTRODUCTION The study is based on the crisis happened in the year 2007.594 1. Data from : http://companyinfo. There is nothing left with the bank.972 15.989 16.129 Closing balances 77.560 3.090 423 40 1.

uk/ BACKGROUND INFORMATION OF MORTGAGES The success of the Northern Rock Bank was as a symbol for the northeast region. There were a lot of banks in UK who were giving the large amount as a loan and the funding as well. Northern Rock Bank was the highest paying bank with respect to the charity and they had sponsored the sports team there. The Northern Rock Bank had gone the over with respect to mortgage assets not as the traditional funding.co. As they have novel life for the traditional sectors. The bank has been deal in the covered bonds that is put the securities against the loan. So the above reasons are sufficient to understand the trust level of the customers on the Northern Rock Bank. The difference was between the deposits and loan prepared by the security notes. 49 .northernrock. There is a lot of difference between the traditional model and the subprime model. But that was the drawback of the bank also.Sub prime crisis and its effects on Northern rock bank Data from: http://companyinfo.

But in Sub-prime model Bank has been taken mortgage bonds from the international market and gave loans to the buyers which will be repaid in Installments by to the bank and bank will paid the amount taken from the market. And the home buyer had been repayment directly to the Bank. 50 . Gender of respondents female male 40% 60% Gender of respondents: Data collected for the analysis is based on questionnaire. 1.Sub prime crisis and its effects on Northern rock bank In the traditional approach the bank has been given loan to home buyer. The following data is analysed by Tha Management for the Mortgages during the Subprime Crisis So to calculate the amount of Impact on the Bank and for the Nationalization of the Bank. for this both male and female have been taken as respondents which comprises of 40% female and 60% male respondents of total number of respondents.

the other level of age group ranges from 32 years to 43 years which comprises 30% of total respondents and the final group is of 43 years and above having 50% respondents. Age group of respondents: Age % 50% 40% 30% 20% 10% 0% 20-31 Age % 32-43 43. The age group of 20 years to 31 years comprises 20% respondents.Sub prime crisis and its effects on Northern rock bank 2). 51 .above Age % The total number of respondents so taken has been categorized into three different levels of age groups ranging from 20 years to 43 years and above.

Sub prime crisis and its effects on Northern rock bank

3).Qualification of respondents:

qualification in %
50% 40% 30% 20% 10% 0% less than qualified qualified high qualified

qualification in % qualification in %

For the purpose of analysis we have taken all types of respondents ranging from less qualified to highly qualified. The group of less qualified consists of 13% respondents the other group is of qualified people consists of 47% respondents and the final group is of highly qualified people which consists of 40% respondents.

52

Sub prime crisis and its effects on Northern rock bank

4).level of respondents:

%
50% 40% 30% 20% 10% 0% employee managers account holder % %

The respondents for the analysis point of view are directly linked to the northern rock bank holding different levels at the bank. The various respondents are employees, manager and account holders (borrowers and lenders both). In which employees are 20%, managers are 50%

and account holders are 30%.

53

Sub prime crisis and its effects on Northern rock bank

5).Involvement year:

%

0-3 3-8 more than 8

For the analysis the involvement year of respondents have been taken from initial year to more than 8 years. 35% of respondents were involved with the bank for 3 years, 35% of respondents were involved from 3 years to 8 years and for more than 8 years only 30% of respondents were involved with the bank.

54

Sub prime crisis and its effects on Northern rock bank

6) computerized system for working

%

occassionaly % always

0%

20%

40%

60%

80%

100%

The northern rock bank works on computerized system. when the respondents were asked about the system of working of bank they respond that the bank always work on computerized system of banking about 90% they held their work on computers and occasionally 10% they depend on manual work. Hence management analysed the situation for the nationalizing the Bank and the consumer behavior on the Subprime crisis.

55

Sub prime crisis and its effects on Northern rock bank 7) According to you the regulatory policies are: in % strong nutral weak When the respondents were asked about regulatory policies of the bank they respond that the bank had 40%-40% of strong and weak regulatory policies and 20% of neutral regulatory policies. Hence management analysed the situation for the nationalizing the Bank and the consumer behavior on the Subprime crisis. 56 .

Hence Bank Management came up with the total amount of Deposit that of the Customers of the Bank are having kind of deposits with the bank So that thay got to analyse the total amount of money deposited from the Costumers and their behavior towards the bank.Sub prime crisis and its effects on Northern rock bank 8) Deposit base in % 80% 70% 60% 50% 40% 30% 20% 10% 0% large small in % The respondents having large deposit with the bank were 75% and having small deposit were only 25% this is because the bank generally preferred bulk depositing by their customers. 57 . Hence management analysed the situation for the nationalizing the Bank and the consumer behavior on the Subprime crisis.

\ 58 . This means that there was problem in smooth flow of information within the departments and across the bank. Hence Bank Management located the problem that actually cause the smooth information flow of the Bank toward the customers.Sub prime crisis and its effects on Northern rock bank 9) Flow of information with respect to Northern rock bank¶s operation: % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% efficient non efficient % According to respondents the flow of information was only 20% effective and about 80% noneffective.

4 0.8 According to respondents the operational efficiency of the management of northern rock bank had 40% strong and had 60% weak.Sub prime crisis and its effects on Northern rock bank 10) Management efficiency of the bank: 4 3 bank's efficiency 2 in % 1 0 0.6 0. and obstacles which actually faced by the bank towards the service that given to the customers. 59 .2 0. Hence Bank Management located the problem that actually causes the smooth operation of the business. efficiency.

Sub prime crisis and its effects on Northern rock bank 11) According to you is nationalization a correct decision: in % 80% 70% 60% 50% 40% 30% 20% 10% 0% yes no in % According to 70% of respondents the decision taken for nationalization of bank was correct and 30% of the respondent said it was not a correct decision. 60 . Hence Decision was made by the management to make the banj Nationalized.

Sub prime crisis and its effects on Northern rock bank 12) Trust on management of northern rock bank: % yes no According to 35% of respondents they had trust on the management of bank whereas 65% of them do not have any trust on management. That was due to the inefficiency by the management of the bank. 61 .

Sub prime crisis and its effects on Northern rock bank 13) Have work structure changed the operations of the northern rock bank: improved operations 60% 50% 40% 30% improved operations 20% 10% 0% strongly agree agree disagree According to respondents 30% of respondents strongly agreed that the work structure has changed the operations of the bank and 50% of them agree where as 20% of them disagreed about such changes in bank. is nationalization favorable to the economy? 62 . Hence steps taken by the management during this crisis was analysed 14) According to managers.

Whereas 20% of the mangers hold that nationalization of bank was not in the favor of economy. The group was closely associated with the Northern Rock Bank. The group consists of the employees. There are the people who are engaged with the bank 63 . Manager. All type of educated people has been taken for the questionnaire. borrower and lender as well. smooth operations. There is no biasness with the gender. Hence the Bank efficiency. in the above questionnaire there were a group of respondents. smooth flow of information and Customer trust is analyzed and worked out. Here.Sub prime crisis and its effects on Northern rock bank in favor 80 70 60 50 40 30 20 10 0 yes no in favor 80% managers are in the favor of nationalization of bank. This is the expected ratio of the male and female with respect to their account holdings. The reason behind it is they were suffered at the moment of crisis so they can answer better than anyone else.

through which the researcher can give the recommendations and the suggestion for the efficient working of the Northern Rock Bank. Respondents think that there has been a correct decision made when the Northern Rock bank become nationalized. That would be the beneficial decision. That was the session to know the views of the expertise on the issue of nationalization. 64 . The customers are not satisfied with the Bank. It means the level of the customer satisfaction is low. So Most of the managers are agreeing to obtain the nationalization and they had described the benefits for the nationalization of the Northern Rock Bank. It attracted the customers and also keeps the trust again in the Northern Rock Bank. (A. Kirman. That can be less than one year or more than 8 years. is nationalization beneficial for the economy. But the respondents are also agreeing that there is a change in the operations with respect to their preplanned work or the work structure. We found that people has lack of trust on the management of the Northern Rock Bank. 2010) This questionnaire is to know the desired answers and to get the appropriate analysis.Sub prime crisis and its effects on Northern rock bank have different time period. According to respondents there is computerized system for workings in the Bank but in their view there is lack of information with respect to flow in the operations. There are many numbers of people who think that there is a strong improvement after the nationalization. In the views of the respondents there is strong management as well as weak but the respondents think that there is normal regulatory policy. that is the area of the improvement. Through the findings we can suggest the recommendations over the problem regarding the management and that could be applied in the real operations for improvement. In the questionnaire there was a special question for the managers that. There should be improvement in the policies.

people were in queue to withdrawn their money. 2007) IMPACT UK bank was not helped to overtake the northern rock. Whole UK government was requesting to the people not to closed their account and be calm to the account holder. That was the period where the whole UK banks came for the help of northern rock. the bank had a unforgotten experience. the northern rock had a poor past with respect to loan credibility. Northern rock got important help from Bank of England. People had got a doubt on the feasibility of northern rock.Sub prime crisis and its effects on Northern rock bank Chapter 5 Recommendations & Conclusion During the most three expensive days in 2007. British government has been taken over to the northern rock bank in the year 2008. They were worried about their economy deposited in the bank. The British bank name the northern rock was seriously affected by the crisis had came in US that is subprime crisis. they are ready to sell.Bs. this was full of subprime mortgage bundles so it called building society association. The problem arisen in this year is people had gone their confidence from the asset that is mortgage bank security class. regulatory authority. but at last northern rock b had needed a great amount and in that emergency bank of England helped it out and done the funding . UK bank wanted to give back the ownership to the bank. This was associate with the subprime mortgage is US. But the people had no trust in t he northern rock and people needed safety. It is the difficult scenario for the banks but now northern rock bank 65 . In the 2007 the situation of northern rock bank was exactly. RECOVERY Northern rock bank now starts with retail deposit and they will not stay with takes pair loan money. and financial services authority and from the UK¶s financial government office as well. (Bernanke. With the money market using funding.

Even despite the fact that UK raised its limitation for the compensation for insuring bank. which resulted in subprime crisis and frequent defaults. Information flow from bank to the customers. It 2007 the basel committee which is regulatory for the banking supervision first time whished for a liquidity set. 6. The bank will definitely move forward and will earn profit. the Northern Rock faced lots of deposit problem to meet payments of these large value depositors. The subprime crisis has affected the whole banking industry in England. The major factors are as follows: 1. There was poor liquidity management in part of Northern Rock. There were lots of factors responsible for the crisis. 4. The Northern Rock was not fully focussed on retail savers for generating deposits. 5.Sub prime crisis and its effects on Northern rock bank is requesting and suggesting the a/c holders to say their money in the accounts. The funding was done on the basis of over credit assessment of borrowers. The subprime mortgage resulted in poor assets quality for the banks. (Barr. The main deposits base of Northern Rock has come from large value savers and when the turmoil of subprime crisis started. 2007)The subprime issue was the main reason behind Northern Rock¶s crisis. The committee wished to have observation on each four or six year and it might be controlled the liquidity standard. Due to the issue Northern Bank faced financial crunch and had very tough time to meet payment obligation of high value depositors. The Northern Rock was not having strong operating system and effective communication flow which resulted in delay for providing effective solution to the problem. The time is for beneficial and honorable banking execution. 3. The crisis and issue affected Northern Rock¶s reputation in the market and also decreased its performance and profitability. In this set the bank has to keep or maintained the account with the enough cash to compare sufficient value with the liability. It also resulted in over purchasing and people bought over budgeted home. The problem with Managent efficiency.. 2. A. was withdrawn in a day. Smooth flow of operations. The age group and qualification of the customers. It resulted in run on bank and approx 11% of total deposit base of Northern Rock. During the period full industry was in a big trouble. The Management was also not exactly aware about the various small problems which were there the system which has 66 .

There should be strong flow of effective information to the management and it needs systematic and strategic implementation of effective management policies. The regulators should also ensure that all policies are being followed by the company and no deviation should be permitted. borrowers and share holders. The bank has its presence it International Business wherein documentation and strong flow of information plays a very crucial role. 3. we suggest following recommendation which would be helpful to come out from the problem and also will reduce the chances of crisis in the future: 1. The company should focus on increasing its retail deposit base. thus it also improves profitability of the company. 67 . There should be regular and periodic audit be conducted by the regulatory bodies.Sub prime crisis and its effects on Northern rock bank increased day by day and resulted in the form of crisis. The retail deposits are also a great source of income because the cost of retail deposits is much lower than high value deposits. This will not be possible without implementation of effective business plans and smooth flow of information right from top to bottom level. There should be adequate regulatory policies to protect interest of company. so that the problems can be resolved at the initial level only. Since the company has its presence in international business. It increased level of risk in Northern Rock. The lack of effective regulatory policies was also one of the major factors responsible for the crisis. After the study of various chapter and deep research on the issue. 2. it is very important that all problems to be resolved at the time of their growing stage only. which will bring stability in its overall deposit. The Bank also needs a strong system to monitor the working and progress of its branches. The retail deposits also increases company¶s customer base and company does not have to depend on some large value deposits or getting funds from securitization or from capital market. depositors.

Sub prime crisis and its effects on Northern rock bank 4. (Masciandaro. There should be a strong department in the company to take care of liquidity position and eagle eye on various global issues going on. Compliance the policies and laws within the company to complement with the outside provisions of the industry. 2003) The company should prioritize all requirements as per importance and accordingly plan to fulfil the same. which will be helpful to achieve company¶s goal in the planned manner. Strategically implementing management measures to ensure that the interests of the bank is secured and the company¶s need to conceptualize and design effective business plans are of primary consideration due to the complex structure of the organization and ever-changing economic environment of the international banking industry. The company should study various effects of the issue on different banks and should also keep a strong watch on the 68 . Since the sub-prime issue is still there. 5. This will ensure better fund management and will also result in improving profitability of the company. The proper resource utilization is also very important to reduce overall costing and being competitive. the company should explore various ways to reduce effect of the issue on the organization. This will ensure better productivity and will also result in improving overall profitability of the company. which can affect company¶s business and profitability. D. All employees should be given work responsibilities according to their potential and skills. The proper and optimum use of available resources is key to success. Identifying priorities will ensure that immediate actions are taken and necessary processes are designed for top priorities. The company should have backup plans to overcome the effect of the various global issues going on.

Since the banking is a very vast industry. the immediate action is taken to eliminate further effect of the issue. We can take example of other countries like India where the reserve bank of India which is The Central Bank. If this issue is not resolved immediately it can damage the whole banking and international financial system. Since in a bank or in a financial institution the company plays with the money of the people. it becomes very important for regulator to take all necessary actions to protect interest of the depositors. it seems too difficult to find out the next effect of the issue or the next turmoil in the international financial system. whether all policies are being followed by the Banks or not and if finds any irregularity. (Roger. Right from giving licence to banks all major policies are made by Reserve Bank of India and all banks have to adhere these policies.Sub prime crisis and its effects on Northern rock bank various plans adopted by other banks to overcome the effect of the issue. The management should also keep this on priority and make various policies to reduce or eliminate the effect of subprime issue. we can say that the sub-prime issue is on very huge level and affecting international financial system. 2009) Finally after conducting the research and seeing result of the study. the same kind of regulation is required in UK also so that the Banking system can be protected from various internal and external issues and improve the health of Banks. The Northern Rock is just a very small part of the sub-prime issue. borrowers. This will help the company to make its plan of action for sub-prime issue. The Reserve Bank of India also conducts periodic audits to see. stakeholders etc. has very good control on all banks running in India. It has become very important to resolve the sub-prime issue at the earliest possible before it becomes out of control. The Reserve Bank of India also keeps an eagle eye of various issues going on in the Indian economy and globally and takes effective measures to protect Indian Banks from being affected from the issue. These also ensure standardization in all the banks of India. The regulators play a very vital role in financial institutions. 69 . Because of RBI¶s better control no such issue like sub-prime is found in Indian Banking system.

The decision of the country to convert the bank into nationalization is the great decision to get the account holders trust back. If once the bank will be successful to the get the trust of the customers. The Northern Rock Bank has to put all their wings in the team work to make customers satisfied. 70 . And the support of the bank of England was the ideal decision not only for the United Kingdom but also for the across the globe. In the Bank there should be good policies for the improvement of the bank and there should be appropriate channels for the flow of the information within the organization and the outside the organization. So we could not stop the crisis but we can get overcome from it.Sub prime crisis and its effects on Northern rock bank It can be best again in the banking industry with some of the efforts related with the improvement of the operations of the bank. Then they will be remain with the bank and will do support in their tough time.

5. 6. Information flow from bank to the customers was not so good. Smooth flow of operations was completely negative. 8.Sub prime crisis and its effects on Northern rock bank Conclusion: 1. The funding was done on the basis of over credit assessment of borrowers. 2. All the problems with management and operations of the bank was analysed and hence bank came up with the conclusion of the nationalization. The age group and qualification of the customers was not considered. 3. The problem with Managent inefficiency was high. 7. 71 . 4. which resulted in subprime crisis and frequent defaults. There was poor liquidity management in part of Northern Rock.

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