Treasury looking at Northern Rock sale

10 June 2009

Northern Rock shareholders are today taking their fight against the government’s compensation scheme to the Court of Appeal amid reports that the Treasury is considering selling, floating or re-mutualising the nationalised lender by the autumn.

Lawyers are arguing that the scheme, which would leave Northern Rock shares virtually worthless, infringes the human rights principle that the state must pay compensation reasonably related to the value of the property it seizes.

In an earlier (unsuccessful) High Court challenge, shareholders claimed that the compensation scheme was based on false criteria to allow the government to net a profit from bank’s eventual sale while they ended up out of pocket.

However, the High Court ruled that Northern Rock would have gone under without the support of the Bank of England and it was not unreasonable that the shares should be valued on that basis.

The ongoing legal action comes amid newspaper reports that the Treasury’s external advisers are looking into a range of options for offloading the beleaguered bank to establish which would give the taxpayer the best return.

It is claimed that the government is more in favour of a sale, rather than a stockmarket floatation, because it would be faster.

However, Treasury officials say a sale is unlikely before the next general election. The government is keen to use its control of the bank to help boost mortgage lending as well as securing the best possible price.

It adds that lenders such as Royal Bank of Scotland and Lloyds Banking Group would not be allowed to bid as they already have a substantial share of the UK mortgage market.

Northern Rock has been steadily repaying government loans; it currently owes £8.8 billion outstanding from the £27 billion it was loaned at the end of 2007.

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