Northern Rock shareholders will meet today

15 January 2008 / by Rachael Stiles
A meeting will be held in Newcastle later today which will give Northern Rock's shareholders a chance to publicly voice their opinions regarding the bank's future, and to vote on whether they should be able to restrict the actions of the board.

SRM and RAB Capital – two hedge funds which collectively hold an 18 per cent stake in Northern Rock – have arranged the meeting, and are calling on the other shareholders to prevent the board from selling off the struggling bank without investors' approval.

However, this could result in shareholders shooting themselves in the foot if selling the bank becomes an unviable option and nationalisation is the only realistic alternative. A sale would be the ideal solution for the bank, but the two suitors willing to take Northern Rock on – Virgin and Olivant – are finding it difficult to secure the funding they need in the climate of the credit crisis which has made commercial companies reluctant to lend to each other.

Shares in Northern Rock fell a further 5.5 per cent yesterday to 82.5p, valuing the bank at £350 million, amongst fears that the stock will become valueless if the bank is nationalised, which appears to be an increasingly likely outcome and would leave shareholders with little or nothing.

The Government said yesterday that the taxpayers' stake in the bank – in the form of a £36 billion loan from the < a href="fairinvestment.co.uk/bank_of_england.aspx">Bank of England – is its main priority and will be protected at the expense of shareholders if necessary, despite the fact that the Government holds a £50 billion state in the bank through loans and guarantees, compared to the shareholders which collectively hold £380 billion.

In order to take Northern Rock into Government control, an Act of Parliament would have to be passed, but this could cause further problems for the Prime Minister Gordon Brown if the European Commission rules that they are acting outside of EU laws on state aid, and shareholder activism would take hold.

© Fair Investment Company Ltd