Northern Rock shareholder meeting achieves little as nationalisation looks imminent

16 January 2008 / by Rachael Stiles
Northern Rock shares fell a further 18 per cent yesterday and nationalisation became a more likely outcome than ever to the bank's crisis, as a result of the rebel meeting of its shareholders in Newcastle yesterday.

One of the primary motivations for two hedge funds – SRM and RAB Capital – to call the meeting was to vote for restrictions of the bank's board in order to prevent it from selling assets without shareholders' permission. However, shareholders rejected this motion, and the only success of the day was a resolution which will block the board from issuing more than £5 million of shares without shareholder approval.

Ironically, these attempts of shareholders to protect their assets and the jobs of Northern Rock's 6,000 employees has been detrimental to their cause, seeing the share price drop to 67.5p and leading the Prime Minister Gordon Brown to speak about the very likely possibility of the bank being nationalised, the worst possible outcome for shareholders as it would leave them with very little or nothing at all.

While some of the 600 shareholders in attendance spoke in angry tones about the damage to their investments, and voiced their suspicions about former chief executive Adam Applegarth selling off his shares at £12 each last year before the crisis broke, reports suggest the meeting generally remained good natured.

Rock's new chairman, Bryan Sanderson, was present and confirmed that the bank was still striving for a private settlement, but that nationalisation was more of a prominent issue than it was several weeks ago.

SRM Global's chairman, Jon Wood, used the meeting as a vehicle for blame which he directed at the Bank of England, and its governor Mervyn King, for handling Northern Rock's liquidity crisis so badly by publicising the bank's problems and thus contributing to the first run on a British bank in 140 years, which, he said, could have happened to any of the other banks which also went to the Bank of England for financial support.

Gordon Brown has little sympathy for the shareholders, making clear that his first priority is to the bank's depositors and the economy. Others, such as the Daily Telegraph's Jeff Randall, whilst wishing the shareholders and employees of Northern Rock well, cannot help but feel some sense of "fascination" and "a hint of schadenfreude" about the "collapse of over-inflated boardroom reputations and ill-founded ministerial credibility".

© Fair Investment Company Ltd