James Miller


Tuesday, November 20, 2007

Northern Rock


Some years ago, I started a finance company. One of the things I did was to look at the pattern of lending, so that I could see what to do in a serious crisis.

By using extensive computer modelling, it became obvious that the way to maximise profits, was actually to shut the company down and just service the existing business. You have no sales costs, only the cost of making sure that everybody pays up on time, which just needs a good collection department.

I have no detailed knowledge of the Northern Rock problems, but I suspect that the way to make the maximum amount of money from the company would be to shut all branches, get rid of most of the staff and then just collect the money owed on its extensive mortgage book. Any new business and remorgaging would be put through another company.

So taking over Northern Rock should be very profitable for another banking or mortgage lender, but it will be absolutely dire for any of the existing employees.

Sorry to be so gloomy, but I spent a lot of time analysing the figures of a finance company, for such a scenario.


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