Financial Crisis
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- Date Submitted: 10/05/2010 01:38 AM
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Chapter 2 : The impacts of the credit crisis on worldwide organizations.
Introduction to this chapter : This chapter discusses multiple significant negative impacts in the aftermath of the housing bubble burst, additionally explained examples of multiple companies that has been majorly effected in the crisis will be mentioned with a detailed analysis.
1. Northern Rock :-
Brief information : A publicly owned british bank was founded in 1965, head quartered in Newcastle U.K, their main services includes banking and mortgages, with total profit estimation of £ 443 million and a total employees of 4,500 as of 2008, Northern Rock was one of the first banks who were majorly effected by the turmoil.
Northern Bank's business plan and the tragic outcomes :
Northern Bank had a business plan which involved borrowing heavily in the U.K and in the money market, a process known as securitization which involved extending mortgages to consumers and reselling them in the international capital markets.
When the global demand from investors for securitized mortgages dropped in 2007 the bank was unable to pay their loans from the money market with funds that should have been raised from the securitization process. The problem was anticipated by the financial markets which made it more public, in September 2007 the bank received a liquidity support facility i.e. a loan to be able to repay the money markets loans due to the failure of raising funds from the securitization process, which caused a panic among individual depositors who feared that their savings won't be available for them in case of receivership.
The panic gradually caused a Bank run which has never occurred in 150 years in the U.K, depositors were queuing behind the doors of Northern Bank waiting for their turn to draw their deposits from the bank particularly since everyone was doing the same.
On Feb 2008 the bank was taken into a state ownership its fully controlled by the government through the...
Introduction to this chapter : This chapter discusses multiple significant negative impacts in the aftermath of the housing bubble burst, additionally explained examples of multiple companies that has been majorly effected in the crisis will be mentioned with a detailed analysis.
1. Northern Rock :-
Brief information : A publicly owned british bank was founded in 1965, head quartered in Newcastle U.K, their main services includes banking and mortgages, with total profit estimation of £ 443 million and a total employees of 4,500 as of 2008, Northern Rock was one of the first banks who were majorly effected by the turmoil.
Northern Bank's business plan and the tragic outcomes :
Northern Bank had a business plan which involved borrowing heavily in the U.K and in the money market, a process known as securitization which involved extending mortgages to consumers and reselling them in the international capital markets.
When the global demand from investors for securitized mortgages dropped in 2007 the bank was unable to pay their loans from the money market with funds that should have been raised from the securitization process. The problem was anticipated by the financial markets which made it more public, in September 2007 the bank received a liquidity support facility i.e. a loan to be able to repay the money markets loans due to the failure of raising funds from the securitization process, which caused a panic among individual depositors who feared that their savings won't be available for them in case of receivership.
The panic gradually caused a Bank run which has never occurred in 150 years in the U.K, depositors were queuing behind the doors of Northern Bank waiting for their turn to draw their deposits from the bank particularly since everyone was doing the same.
On Feb 2008 the bank was taken into a state ownership its fully controlled by the government through the...