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Outrage and theft

Created:
18 February 2008
Updated:
19 February 2008
Written by:
Oliver Ralph

Outrage! Outrage, outrage, outrage! Northern Rock's shareholders are disgusted. Incandescent with rage at the treatment that has been meted out to them by Alistair Darling and Gordon Brown, via their decision to nationalise the bank.

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And they're not going to take this scandal lying down. The UK Shareholders Association likens the nationalisation to theft, and says it is examining legal options to thwart the process. The big hedge funds who invested in the bank are also likely to turn to the law, demanding at least 400p for shares that were trading on Friday at 90p.

Unfortunately, their efforts are likely to be in vain. Much like the black knight in Monty Python and the Holy Grail, who refuses to give up despite losing both arms and legs, they're talking the good talk in the face of impossible odds against them. The fate of Northern Rock stands with the government, and has effectively done so ever since it turned to the Bank of England for emergency funding.

The bigger question for investors is whether Northern Rock's shareholders are justified in their fury. At first glance, of course they are. If the government handles things well (admittedly, a big if), it could make a healthy profit on its "investment." Although its reputation is in tatters, Northern Rock has a half-decent loan book, and running that off should provide a healthy return. To deny shareholders their slice of the pie is at the very least unfair and, at the most, as the shareholder groups suggest, an outrage.

But in another sense, Northern Rock shareholders have had it better than most. Listed companies run out of funding all the time. The usual consequence is a small RNS announcement saying that the shares have been suspended "pending clarification of the financial position", followed a few weeks later by the appointment of administrators. Shareholders get nothing, and no chance to sell.

Northern Rock's shareholders have known since last summer that the bank was reliant on the government for funding and that nationalisation was, if not likely, then at least possible. And as the months have gone on, nationalisation has become the most likely option. Northern Rock's shareholders have, thanks to the government, had months to sell on the open market (as we have repeatedly advised them to do). Shareholders in other companies that have gone to the wall might be wondering why the government has not extended the same courtesy to them.

WHAT DO YOU THINK?

State appropriation, or orderly rescue? Are Northern Rock shareholders right, or should they have sold their shares months ago? Send us your views using the Your Opinion page...

"Shareholders are right to be disgusted with the government's decision to nationalise their company" - JN Healy

"I bought shares after the initial fall, and sold after they fell further - that's capitalism" - Peter Reiss

For these and more views, click here

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