Northern Rock shareholders in court to demand compensation

13 January 2009 / by Rachael Stiles
Northern Rock shareholders are in court this week to contest their treatment by the Treasury, which they believe left their investment worthless when it nationalised a bank that still held significant value.

The bank was crippled by losses from the collapse of the sub-prime mortgage market in America, and suffered a subsequent run, seeing customers queuing for hours to withdraw money from their savings accounts when rumours emerged about its financial situation in the summer of 2007.

Northern Rock's 150,000 private investors are being represented in court by two of the bank's biggest shareholders, SRM Global and RAB Capital, which brought the case against the Treasury and which will claim that the Treasury's valuation of the mortgage lender was flawed.

The hearing is set to last several days, according to the BBC, and will give Northern Rock shareholders an opportunity to argue not that the Treasury should not have nationalised the bank, but that the valuation was incorrect, that it treated the bank as if it had already fallen into administration, deeming the bank's shares worthless and leaving investors unnecessarily out of pocket.

"We take many risks as shareholders, but we don't accept the risk normally that the government will confiscate one's property without fair compensation." Roger Lawson of the UK Shareholders Association told the BBC.

"We are saying that [Northern Rock] wasn't worthless, that it was actually a significantly valuable property and we should get fair compensation, judged by a proper, independent, normal, commercial valuation."

Hundreds of Northern Rock shareholders have gathered in London this week to protest what they believe to be their unfair treatment by the Government, led by the UK Shareholders' Association (UKSA), which said that the protest would provide a good opportunity to get the viewpoint of the small shareholders who have been "badly affected by the events of the last year."

UKSA said in a statement last week that the court case is intended to prove the "totally artificial conditions" relating to the valuation, "that do not match the facts," and which "are likely to result in very little or no compensation." for the bank's shareholders.

"The claim is that the terms under which the valuation takes place, which have been dictated by the Government in the legislation used for the nationalisation of Northern Rock, are a breach of the European Convention on Human Rights which is embodied in UK law." it said.

© Fair Investment Company Ltd