The shareholders of nationalised bank Northern Rock started legal proceedings against the government yesterday to claim compensation for taking into public ownership what they believe was still a viable business.
The UK Shareholders Association (UKSA) has submitted an application for judicial review which questions the terms under which the bank was nationalised, which will leave its 15,000 private shareholders with virtually nothing.
Northern Rock hit liquidity issues when its disproportionate investment in US sub prime mortgage
lending was lost when the market went sour last summer, culminating in the current global credit crisis.
Hedge fund SRM Global – which holds an 11.5 per cent stake in Northern Rock – has also filed an application, and other major stakeholder RAB Capital is expected to follow suit.
Legal & General, which has a five percent stake in the bank, has joined its fellow shareholders in taking legal action against the government to secure compensation for its losses. Unlike the hedge funds, as a respected, long-term stakeholder L&G's decision to fight for compensation is expected to put pressure on the Government.
UKSA is arguing that Northern Rock's shareholders deserve to receive the same amount per share that they would have if a private sale had been agreed, thought to be about £3 to £5, rather than the five pence per share which they are expected to be offered.
The value of their shares should be "decided by an independent expert using the common approach taken to such cases and past practice." A report from UKSA said. "But the Government seems to have determined that it wishes to pay nothing and has set totally artificial terms of reference."
“Many smaller shareholders do not seem to have realised that the Government is intent on paying them nothing." said Roger Lawson, Chairman of the Northern Rock Shareholders Action Group. "In addition they are under the false impression that the shares will be returned to them after the period of ‘temporary public ownership’ trumpeted by the Government – which is clearly not the case.
"I have had shareholders in tears to me on the telephone after I have explained to them the true situation and that their investment in the company is effectively lost…They simply do not understand why the Government would take away their shares, which were backed by substantial assets, and not pay fair compensation."
If the applications for judicial review are accepted, then the case will go to a full hearing, which might not begin for eight or nine months.
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