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Northern Rock bailout benefits UK Financial Investments

Major news this morning was the much anticipated results from the ECB’s second 3 year LTRO, from which we learnt the ECB had allotted €530 billion across 800 institutions. Whilst the number of banks participating was significant, the total value of the loans was slightly ahead of, but not significantly divergent from expectations. With such a figure anticipated, reactions were muted across asset classes, major Eurozone stock markets traded modestly higher and the Euro lost some ground against the dollar.

There was a raft of company results keeping analysts and investors busy today, ITV the biggest beneficiary in response to better than expected 2011 results. Growth was driven across the Broadcasting and ITV studios business, sufficient for Credit Suisse to increase its price target to 100p (form 90p previously), citing the fact that the group was the cheapest broadcaster in Europe. Shares finished the day at the top of the index putting on 6.8 to 85.95p.

International Consolidated Airlines Group, the owners of British Airways and the Spanish aviation group Iberia, was also amongst the gainers again following a good set of 2011 numbers. Whilst revenues per passenger were up and non-fuel related costs were down for the year, the group was cautious in its 2012 outlook citing high fuel costs and weak European markets. The group also showed starkly different performances in its British and Spanish businesses, with the former benefiting from improving demand in transatlantic travel whilst the latter suffered due to its proximity to the eurozone crisis and strong competition. Shares were higher by around 2% although sold off with the market ending the day up 0.6% at 164.2p.

UK Financial Investment, the entity set up during the financial crisis to manage the government’s holdings of financial institutions following bailout announced yesterday that it expects to make a return on the £37 billion bailout of Northern Rock. The UKFI suggested that it was expecting to make £46-48 billion on its investments, generated from the sale of Northern Rock Plc (the “good bank”) to Virgin money, as well as loan payments, interest and the winding down of Northern Rock Asset Management (the “bad bank”). The sum is expected to be made over a 10 to 15 year time horizon, and as such would represent a rate of return in the region of 3.5 - 4.5%.

The FTSE 100, having spent most of the day hovering around the flat line, lost ground towards the end of the day, weakening by 0.95%, 56.4 points, to 5871.5.

This was posted in Bdaily's Members' News section by James .