Rock nationalisation ‘appals’ shareholders

Shareholders in Northern Rock were left staring at huge losses after the Chancellor announced that the bank would be nationalised on Sunday. Since trading at a peak of over £12 last year the bank has had to endure an emergency loan from the Bank of England and the first run on a British bank in 150 years. Subsequently the share price has lost 95 per cent of its value.

Northern Rock’s business plan left it seriously unprepared for the credit crunch, and with investments tied into the American housing market it needed to take an emergency loan from the Bank of England in September. When this was announced, customers at the bank panicked, and subsequently withdrew billions of pounds worth of savings. The share price subsequently collapsed, and there has been takeover speculation ever since.

After periods of courtship with a number of takeover suitors, Chancellor Alistair Darling believed that none of the offers gave shareholders or taxpayers value for money, so he saw nationalisation of the bank as the only legitimate course of action.

Shares in the bank were suspended on Monday and many shareholders are now threatening legal action after the government’s move. Robin Ashby, spokesman for the Northern Rock Small Shareholders Group, said he was ‘shocked and appalled’ by the ‘disastrous announcement.’ He also added his belief that ‘the government has been instrumental in driving the share price down’ and that shareholders ‘won’t take it lying down.’

SRM and RAB Capital, two hedge funds, have a combined stake of almost 20 per cent of Northern Rock’s shares - worth £76 million at Friday’s closing price – and many of those shares were bought at a much higher price. Even before the government took the decision to nationalise Northern Rock SRM had threatened to sue if it didn’t compensate investors 400p per share, a 400 per cent premium on the current price.

The whole debacle has really hit Northern Rock as a brand, with thousands of people withdrawing mortgages and savings from the bank. A statement on its website has said that ‘The terms and conditions of your mortgage, savings and other products remain unchanged.’ People still aren’t wholly convinced, and a number have already switched. If you’re concerned about your Northern Rock products or you’re looking to get your finances in order this year, then Alliance and Leicester comes as recommended for a selection of mortgages and bank accounts.