Northern Rock or Northern jelly..
Tuesday 18 September 2007
After returning from visiting New York and meeting some US Wealth managers, I came back to the news of Northern Rock. Whilst much has been written on the subject, I was interested to read a comment which questions both the Bank of England and the Government support of the bank. I have no issue with such sentiment for investors, my only concern is that it does not create a precedent for other banks to pursue higher profits with higher risk knowing that if they make a mess of it, someone else will clear it all up! There are always mitigating circumstances or let us say, excuses, which may be used by the banks if they get into trouble...Northern Rock say it was not our fault, but fundamentally, the Northern Rock used a higher risk approach to generate higher profits. The unforeseen risk of the credit crunch is part of the risk return equation.
What’s the moral? Simply that risk and return are related. Perhaps Northern Rock did not offer investors high enough returns on their savings, in which case, investors perhaps could have weighed up the risks beforehand. As for the future, no one knows what more ripples may emerge from the credit crunch. If Alan Greenspan, ex Chairman of the Federal Reserve in the US is to be believed, there is future turmoil in the US property market. Could that have implications in the UK property market? Clearly no one knows, but the key issue remains the same. Risk and return are related. Make sure you have optimised these two factors in the equation.
See here for the article in the FT.
Greenspan alert on US house prices
By Krishna Guha in Washington
Published: September 16 2007
"US house prices are likely to fall significantly from their present levels, Alan Greenspan has told the Financial Times, admitting that there was a bubble in the US housing market.
In an interview ahead of the release on Monday of his widely-anticipated memoirs, the former chairman of the Federal Reserve said the decline in house prices “is going to be larger than most people expect”.
posted by Murray Round Wealth Management @ 12:07,
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Nicholas Round
Nic is the Managing Director of Murray Round Wealth Management Limited, who seeks to ensure the advice provided is truly independent. Based in Shropshire with clients local, national and worldwide, Nic has strived to find the best possible service for his clients needs, by researching and studying the market, trends and philosophies. Nic strongly believes Asset Class Management will bring his clients Financial Freedom, Independence and Happiness.
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