Greenclose v National Westminster Bank plc: Difference between revisions

Greenclose v National Westminster Bank plc (view source)

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→‎The collar renewal in 2012

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 ====The collar renewal in 2012====
+Interest rates were even lower in 2012, and the collar was massively out of the money for poor old Greenclose, now facing the ugly prospect that it might be extended for seven more years. Of course NatWest wanted to extend its collar, even though interest rates presented no real risk to Greenclose (four years later, they are lower still), but because they would make a ton of money. Ironically, because the collar significantly increased Greenclose's running interest costs, extending it would ''increase'' the very risk of insolvency NatWest first required the option to guard against.
-If interest rates were low in 2006, they were even lower in 2012. The collar was massively out of the money for poor old Greenclose, and there was this prospect that it might be extended for seven more years. NatWest wanted to extend its collar, notwithstanding that interest rates presented no real risk to Greenclose (as I write, four years later, interest rates are even lower), but because they would make a ton of money. Ironically, because it significantly increased Greenclose's running interest costs, extending the collar would increase the very risk of insolvency the bank at required it to guard against.
+Now let’s be clear here: this is fair enough. This was fair enough: NatWest had priced its lending operation so as to avoid this risk. It would be bad business for a bank not to exercise a valuable option. But all the same, it still managed to look like a big, bad bank.
-Now ignoring for a moment the fact that Greenclose was a little old lady, let’s be clear here: this is fair enough. NatWest had priced its lending operation so as to avoid this risk. But it still managed to look like a big, bad bank.
+====NatWest's errors====
-=====NatWest's errors=====
 Schoolboy error no.1 was to have notice deadline which expired during the Christmas holiday period, when Greenclose was highly likely to be out of the office. But that’s as may be. In fairness, it's not outlandish to expect a hotel to be open in the Christmas holidays. But generally, don't have your options expire between Christmas and New Year.
 {{Box|'''Learning Number 1''': Don’t set options that expire in when everyone's likely to be out of the office.}}