NR shareholders lose legal battle
Former shareholders in Northern Rock have been left heavily out of pocket after losing their High Court battle against the government’s proposed compensation scheme.
Around 150,000 private investors, along with hedge funds SRM Global and RAB Capital, had argued that the Treasury undervalued the bank by acting on false valuation criteria when the takeover went through.
Lawyers for SRM Global alleged that the Treasury "chose to nationalise on terms that will ensure that the former shareholders receive, at best, derisory compensation for their shares".
Lord Pannick, representing SRM, said the government's plans for compensation “will ensure that the government obtains full ownership of this valuable business having paid nothing, or next to nothing, for it, and so inevitably makes a profit when it sells it off in due course, as it has indicated it intends to do."
Shareholders claimed that the government’s valuation criteria violates the European Convention on Human Rights, which states that the state must pay compensation reasonably related to the value of property it takes.
However, the government argued that Northern Rock required multi-billion pound lifelines from the Bank of England and the Treasury without which it would have hit the rocks - therefore, it argued, the shares should be valued at what they would have been worth without the financial assistance.
Accountants are currently valuing the shares and determining compensation levels but the shares are now effectively worthless.
The bank was nationalised last year after the wholesale markets, on which it was heavily reliant, froze.
A catch-all phrase that can range from assessing the price of a property or vehicle before offering it for sale or the net worth of assets in an investment portfolio to the prices of shares on a stock exchange.
A sophisticated absolute return fund that seeks to make money for its investors regardless of how global markets are performing. To that end, they invest in shares, bonds, currencies and commodities using a raft of investment techniques such as gearing, short selling, derivatives, futures, options and interest rate swaps. Most are based “offshore” and are not regulated by the financial authorities. Although ordinary investors can gain exposure to hedge funds through certain types of investment funds, direct investment is for the wealthy as most funds require potential investors to have liquid assets greater than £150,000m.