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Shares hit rock bottom: Shareholders join forces as value of Northern Rock is questioned

22 November 2007
Northern Rock's shares are suffering and have fallen to a record low at the hands of the credit crisis and bidders for the stricken bank that are making offers below its market value.

It is thought that only one of the eight or so bidders has put forward a full takeover bid, which is worrying the shareholders who have been given little reassurance from the chancellor Alistair Darling, who has put the Government's loan to Northern Rock of more than £20 million and depositors' interests ahead of stakeholders'.

Shares dropped to a new low of 84p on Tuesday, compared to the £12.50 they were trading at in February, but the Treasury is more concerned with saving face and the taxpayer's money, which has footed the contingency loan. The Government will also suffer political embarrassment if the bank is sold off, only to turn a massive profit for its new owner and leaving the Government without any share of it.

Paragon's fate seems to be imitating that of Northern Rock, as it too is suffering huge slumps in the value of its shares to just 80p – a huge drop from 750p 18 months ago. It is struggling to keep its head above water by finding new finance, because, like Northern Rock, it has all of its eggs in the mortgage basket and no retail savings customers.

It is also at risk from being undercut by HBOS, which has launched a new tracker mortgage deal from Birmingham Midshires which could be more attractive to borrowers and therefore lure would-be Paragon customers. Other banks are also feeling the pinch of the credit crisis, with Royal Bank of Scotland, Barclays and Lloyds TSB all suffering blows to their share value.

Northern Rock's fate still hangs in the balance as discussions are held regarding its future and its various bidders are considered, which include the Virgin Group, JC Flowers, and Olivant.

The crippled bank's soon to be ex-chief executive, Adam Applegarth, is also waiting to hear whether or not he will get a payout when he leaves the bank early next year, after announcing his resignation last week as a result of his part in its troubles. He is expected to leave with £380,000 – half a year's salary – but no bonus or pension top-up. Former chairman Matt Ridley left the bank with nothing when he stepped down last month.

Some are criticising the amount that Applegarth could walk away with, saying that it would be an insult to the shareholders, customers and employees who are suffering as a result of the boss' negligence and incompetence. The board is also facing resistance and potential legal action from shareholders if they are left with nothing when the bank's future is determined.

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