Accountancy Age reports that:
Northern Rock shareholders are reportedly planning to sue the UK Government over its plans to value shares in the newly nationalised lender.
The Northern Rock Compensation Scheme Order is expected in the House of Commons early this week.
Under the terms of the order, an independent valuer will be appointed to decide on the appropriate level of compensation. However, the order says that the valuation should be based on the assumption that without the Treasury's intervention, Northern Rock was unable to continue as a going concern, and was in administration.
Shareholders argue the Government has no right to specify such terms which are likely to render their shares worthless.
Well, let's be honest, wiser men than me have already said that based on the objective facts that's the case. And as a matter of fact without the Treasury's intervention, Northern Rock was unable to continue as a going concern.
But, as is always the case with market enthusiasts, facts should not be allowed to get in the way of cash. So what should the government pretend then? That in February this year Northern Rock had just reported bumper profits, was issuing new mortgages faster than ever before, the sub-prime crisis hadn't happened and there had never been a run on Northern Rock?
Roger Lawson, chairman of the shareholders action group has apparently said:
We consider it ethically and morally unjust for a government to contrive to fix the terms of compensation.
So do I. But I think it's unethical and immoral to ask for a valuation based on a fantasy rather than the facts. I wonder why these people are wasting their time?
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Isn’t there always a disclaimer put into adverts for investment products saying “Your return is not guaranteed and the value of investments may go down as well as up”?
Northern Rock is a very drastic case of this, but surely if the Government had not stepped in to rescue it, then the shareholders would have been left with nothing?
Wouldn’t the shareholders have known when they bought the shares that there was a risk that Northern Rock, like any business, could fail?
M
Another bank has just gone under, thanks to reckless risk-taking and impenetrable securities.
Today’s “plight” of Bear Stearn shareholders should provoke some thought amongst those holding Northern Rock (including those who bet on a bail-out).
Its “being bought for a tenth of what it sold for a week ago, and 1.25% of what it sold for a year ago” (Paul Kedrovsky).
This is not far from the Rock’s value (relative to last year) were it left to ‘market forces’.
They should be grateful for anything at all.