NR shareholders lose legal battle

13 February 2009
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.

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