Investing in Northern Rock, the distressed UK mortgage lender, is now a game for hardened gamblers. The muddy confluence of desperate politics, financial greed and spin has obliterated transparency.
On paper, working out how much to pay for Northern Rock, or estimating the value of the only bid on the table, is relatively simple. Northern Rock was insolvent without government help. This week’s proposal from Richard Branson’s Virgin, roughly, could leave investors with shares worth as little as 60p. That assumes that today’s book value of £1.9bn is hit by fees and writedowns of £750m, before adding the £1.55bn capital provided by Virgin and a proposed rights issue. It also assumes that a shaky, reborn bank deserves to trade at a lowly 0.8 times book value and that Virgin Money is worth the £250m Virgin says it is (which is debatable)
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