Steer reaps rewards of Northern Rock collapse

New Star’s AA-rated Tim Steer has seen his UK hedge fund profit to the tune of £2 million, after shorting Northern Rock days before its share price crashed.

Steer took a short position in the beleaguered specialist lender within his $380 million (£188 million) New Star Gemini hedge fund at £7.03, before closing the short at below £2.

Steer, who also runs the New Star UK Alpha fund (New Star UK Alpha Ret), said: ‘It made me approximately £2 million in a market that was down, contributing about 1.5% to the fund in August.’

Steer expects Northern Rock’s (NRK) share price to keep falling, despite exiting his position.

He said: ‘I am no longer short. That is not because I think it won’t continue to fall, but because the space has become quite crowded and a lot of other people are continuing to short it.’

Steer believes the bank’s shares could continue to fall, despite pressures from some brokers to buy them back.

However, Steer believes its business model is now fundamentally flawed.
He said: ‘It could go all the way. Prime brokers may ask you to buy it back because they are being asked to do so.

‘The business model has changed overnight. This is a bank that gets its finance primarily from the wholesale banking market, which is now very tricky.’

Steer has also imposed shorts on other banks affected by sub–prime fears, and said shorted positions in Bradford & Bingley, Alliance & Leicester (AL.) and Paragon remained in place.

He added: ‘The fund has seen performance of 4% in a month from financials. These stocks are all attractive for shorting and have been major contributors in September.’