Shareholders are likely to receive nothing - analysts

6:02am Tuesday 19th February 2008

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Following the Government's decision to nationalise Northern Rock, The Northern Echo talks to shareholders about their views, and reports on the latest developments in the battle to save the bank

NORTHERN Rock small shareholders were last night facing up to the prospect of being left with next to nothing after the bank's nationalisation.

Chancellor Alistair Darling is expected to appoint an independent valuer to decide on shareholder compensation once emergency legislation to nationalise the bank begins its passage through Parliament.

The Government is keen to make some kind of payment in order to avoid a lengthy legal battle with investors - as with the now defunct Railtrack, which was placed into administration in 2001.

But any payout is still likely to leave shareholders nursing steep losses, with Northern Rock's value having plummeted from £5.3bn this time last year to £375m.

Northern Rock shares, which were suspended from trading yesterday morning, closed at 90p on Friday, a fraction of the 1226p peak a year ago.

Robin Ashby, from the Northern Rock Small Shareholders campaign group, said many small shareholders would be left impoverished.

He said: "Many of these small shareholders have these shares as their sole investment outside their pension fund.

"They looked at it as a little bit extra for their retirement or perhaps as a fund to send the kids to college.

"Now all of that has gone."

He said that about 100,000 of the 150,000 small shareholders in Northern Rock had 1,000 shares or fewer.

Of these, about half were in the bank's North-East heartland.

He said: "These people have been extremely loyal and deserved better than the way they have been treated by the Government.

"There will be an independent valuation panel set up to assess the level of compensation which will be made available. But all the leaks from the Government have suggested that will be virtually nothing, and we have learnt the hard way that these leaks are usually correct."

Mr Ashby said that unlike the city-backed hedge funds that had shares in Northern Rock, his group had no money to take legal action and was "powerless".

He said fair compensation would be 438p to 452p a share - a valuation that would cost the Government £1.7bn.

Northern Rock's two largest shareholders, hedge funds RAB Capital and SRM Global, which own about 19 per cent of the bank, are thought to be preparing to sue the Government unless they receive at least 400p a share.

The two hedge funds have been criticised for attempting to gain a fair deal for shareholders after they "bet against" Northern Rock, making money on its stocks falling in value.

Alex Potter, an analyst at Collins Stewart stockbrokers, said there was a chance shareholders may receive a small payout, but any compensation was likely to be far less than 400p a share.

He said: "For the reason of political expediency, they may get some money for their shares and maybe at the 90p that shares closed at on Friday.

"That would only cost the Government £380m, but they should count themselves extremely lucky if they get anything at all.''

Sandy Chen, an analyst at Panmure Gordon, said: "The current shareholders will want to see some money out of their investments, but the financial reality is that shareholders are likely to get nothing."

A Government spokesman said yesterday that the "principals for assessing compensation, set out in the legislation, reflect that Government should not be required to compensate shareholders for value which is dependent on taxpayers' support".

Mr Darling has stressed throughout the saga that shareholders were aware of the risks of investing when they bought shares and that the Government guarantees were in place to protect taxpayers and not shareholders.

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