The £20Bn Price tag could be covered by the deposits held in accounts. Yet that would be effective mutualisation of a limited company. It is the argument put to the Board when Northern ROck was demutualised that becoming a limited company would offer a better business model. This has failed to be sustained. The argument now is that Northern Rock should Mutualise in order to remain in existence. The Mutual Model was stable for far longe than the speculation model.
Shares in the bank have lost nearly 75% of their value since it was forced to seek emergency funding from the Bank of England two weeks ago. Yet, the Bank has retained depositors. There were mass withdrawals from Northern Rock - but these were due to the possibility that, should the Bank have gone bust, compensation would not cover deposits. It was, as the Bank of England remarked, a perfectly rational course of action. It is now perfectly rational for those depositors to take more control of the Bank.
Northern Rock got itself into financial difficulty because unlike most UK banks, it raises the majority of its funds via the global wholesale credit market. This is the aspect of the business model that holds up badly to scrutiny. This market has dried up over the past month as a result of the crisis in the US sub-prime mortgage market, which has made banks and other investors a lot more unwilling to lend to each other. Yet, even during that credit crunch, Norther Rock managed to have upwards of £2Bn of deposits. The depositors showed a confidence and acumen not seen in the expert markets. With an end of reliance on loans provided on the whim of some distant speculator, Northern Rock can continue to function as a respectable institution - actually providing the financial service it claims to.
Last week the government said it would guarantee all deposits held by Northern Rock, in an attempt to reinforce confidence in the firm. Which is the perfect opportunity for Northern Rock to be mutualised. All that is needed is for a Depositor to purchase some shares and put the motion to the Board through an extraordinary gemeral meeting. Depositors agreeing to purchase this undervalued asset is both an investment opportunity and a very visible demonstration of confidence.
A majority of analysts say the bank's future as an independent company is untenable, but a buyer has yet to come forward.
Banks said to have turned their backs on a potential bid for Northern Rock are HSBC, Royal Bank of Scotland, Barclays and Lloyds TSB. All experts in their field: non mutual banking. Which makes it increasingly tenable for Northern Rock to cease being a company and start being a mutual company. The autonomy of Northern Rock would be given strength and that would improve the market for all people seeking to buy a home: because it would base the purchase of property closer to the depositor and out of the greedy clutches of speculators. It might even help to hasten the end of speculative house purchases.
Due to the Global Credit Crunch many Investment Banks will be posting zero profits on some of their activities. These profits have gone somewhere and that somewhere is, in a large part, into mortgages. This is an opportunity for home owners to mutually own their debts. To take back control over their financial lives. It is not a get rich scheme. It is not a way of making money but shows the best response to the financial incompetence of capitalism is to use their disasters for the mutual benefit of fairly ordinary people. Not the super rich. Not the six figure salaries. But people who have to work to pay a mortgage and struggle to make ends meet.
The bottom line is that Northern ROck is better off in the hands of its depositors. Unlike the Speculators, the Depositors have maintained a level of confidence that has kept the business away from bankruptcy. Only just, but now it is time for Depositors to exercise their advantage and mutualise Northern Rock.