Northern Rock shareholders face up to losses

Shareholders of beleaguered Northern Rock were facing up to more heavy losses today after the company admitted rescue plans for the group were “materially below” the company’s current value.

Shareholders of beleaguered Northern Rock were facing up to more heavy losses today after the company admitted rescue plans for the group were “materially below” the company’s current value.

The Newcastle-based lender’s shares are now worth little more than £1 – after peaking at £12.51 in February.

The fact that chief executive Adam Applegarth, who resigned on Friday, made £2.6m (€3.6m) selling shares in the Rock at close to their peak will do little to improve the mood of shareholders.

Small private investors own around 18% of the shares in the company. According to the UK Shareholders Association (UKSA), there are more than 100,000 names on the company’s share register following the lender’s demutualisation in 1996.

The UKSA has organised two meetings next week in Newcastle and London to explain the situation to shareholders.

Spokesman Roger Lawson is keen to protect the interests of smaller investors against a cheap sell-off of the bank’s assets to save Government blushes with a speedy conclusion to the crisis.

He said: “The bids are pretty worthless as we rather predicted they would be. But why should the shareholder be screwed so that the Government can get its money back?”

The UKSA is backing proposals by former Abbey chief executive Luqman Arnold to parachute in a heavyweight management team to turn around the business without the company changing hands or being split up.

He added: “The Government has to be sensible and not panic about the political view of the electorate, and ask what the best solution is for all stakeholders, which include the employees, shareholders and people like the Northern Rock foundation.

“We think the best solution is certainly not a sale of the business to a third party.”

Other investors which may attract less sympathy are hedge funds, RAB Capital and SRM Global, which own around 13% of the company.

The pair, who built up stakes in the weeks following the immediate crisis in September – were hoping to gain from a recovery in the share price but with the share price at record lows seem unlikely to make a profit. Both declined to comment.

Traders have also “shorted” the shares – betting that the company’s share price will continue to fall – and adding to the downward pressure on the stock.

But with an estimated £25bn (€35bn) of taxpayers’ money loaned to prop up the bank so far, shareholders are unlikely to be the primary concern to the Treasury, Financial Services Authority (FSA) and the Bank of England, the so-called “Tripartite Authority”.

Investors in the lender – unlike the customers whose savings have been guaranteed – are likely to be the most expendable victims of the crisis.

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