Play fair or we’ll be seeing you in court

Mar 20 2008 by William Green, The Journal

FURIOUS Northern Rock shareholders yesterday told ministers to give them fair compensation or see them in court.

The Treasury has been given 21 days to change the process deciding compensation for shares or face a judicial review launched by a group representing small shareholders.

The UK Shareholders Association – which has set up a Rock action group – blasted the system as “rigged and self-serving”. It claimed it was designed to provide little or no compensation while the Government made a profit once the company is sold to the private sector.

And it suggested compensation of £4 to £5 a share was “fair” amid claims it could be just 5p for the estimated 180,000 Northern Rock shareholders – many of whom live in the North East.

It also emerged hedge fund SRM Global – which holds a large chunk of shares – is set to take similar legal action and is ready to “stand beside” small shareholders, with the possibility both could combine their efforts.

The tough message was delivered at a Press conference in London where shareholders revealed they have lost hundreds of thousands in the aftermath of Northern Rock’s troubles.

They blamed the “disastrous” handling of the crisis by the Government and regulators as a key cause behind the run on Northern Rock last September and its following problems.

The current row centres on “assumptions” the compensation valuer must base their conclusions on Government legislation, that Northern Rock is in administration and not a going concern.

Roger Lawson, from the UK shareholder association, said these assumptions were “wrong” with ministers repeatedly stressing the bank is a going concern and that it was not in administration.

“They have put in the valuation assumptions which are clearly not the real situation and we don’t think that is fair. So what we propose to do is take legal action jointly with some of the institutions,” said Mr Lawson.

He suggested compensation of up to £5 a share could be fair, but stressed the action was about securing a fair valuation process rather than any specific value. He was confident enough financial support from shareholders could be secured to take legal action, with 7,000 already contacted and contributing £30,000 so far.

David Greene of solicitor’s firm Edwin Coe, which is acting for the shareholder group, said: “What is being put into effect by the Government is a self-serving and rigged valuation process clearly looking at reducing the value of compensation as low as possible if not to nil.” The valuation process could continue alongside a judicial review, which may take 18 months to complete, he said.

A Treasury spokesman said: “We have set out clearly the basis for valuation of the company in legislation that has been discussed and passed by Parliament.

“It will be a matter for an independent valuer to establish the value in accordance with that legislation.”

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'I bought shares because I thought it was one of the safest companies'

ANGRY shareholders in Northern Rock have revealed shocking losses running into hundreds of thousands of pounds as ministers came under fresh fire over the bank’s troubles.

Durham builder Brian Peart has lost “hundreds of thousands of pounds” from his share portfolio, which he uses as his pension, in the storm that erupted around Northern Rock.

At a meeting of shareholders in London yesterday that announced legal moves against the Government, he branded the system of financial regulation introduced by Gordon Brown as a “complete disaster”.

“I bought Northern Rock shares because I thought it was one of the safest companies in Britain. It is the fifth biggest bank, it had a good balance sheet on the top of its mortgage book.

“Its mortgage book was of high quality and it was making between £500m and £600m a year. And when you look at the results for five or six years, it gradually got larger in every way,” said the 71-year-old.

Mr Peart, who acquired 120,000 shares over the last four years, added he bought shares in the Rock because it was a North East company.

“I have lost thousands, hundreds of thousands. I bought half of them at an average of £7.50 and half of them have been bought at lower levels,” he said.

But ministers must now give shareholders fair compensation following nationalisation because the valuer had “their hands tied behind their backs” because of the legislation, said Mr Peart.

Retired Northern Rock worker Dennis Grainger, 61, from Cramlington, Northumberland, lost £25,000 when he was in hospital for an emergency appendix operation for three days last September during the height of the Rock crisis.

The assistant accountant had bought shares through a company share saver scheme since 1998 but his losses could top £114,000.

“I think we have been robbed and I feel sorry for the 150,000 shareholders who are going to suffer. There are a lot of people you can blame but the Government has a heavy hand on this,” said Mr Grainger, who worked at Northern Rock’s Gosforth headquarters.