A legal battle between Northern Rock shareholders and the UK Government came a step closer today after Treasury lawyers rejected investor pleas for “fair compensation”.
The UK Shareholders Association (UKSA) will now seek a judicial review of the Government’s decision to base payouts on the assumption that the crisis-hit firm was unable to continue without public support.
UKSA says this would leave shares in the Newcastle-based group virtually worthless and wants to overturn the decision.
It hopes the review – expected in nine months’ time – will force ministers to rethink the valuation of the business, which owes the taxpayer around £24bn (€29.9).
Most firms rely on some form of bank debt to finance their operations and it would be “nonsense” to value them on the basis of the debt being instantly withdrawn, Mr Lawson claimed.
He added: “Many of the problems faced by Northern Rock were compounded by the actions and inactions of the Government and it is totally inequitable for them to benefit as a result.
“As it is they intend to acquire a very substantial asset at well below fair value and they may be able to sell it off in a couple of years time at enormous profit.”
The group is also in touch with hedge funds and major shareholders RAB Capital and SRM Global, whose own lawyers are working on a challenge.
Northern Rock was at the centre of the UK’s first bank run in more than 140 years last year after it was crippled by the freeze in money markets.
Shares in the group fell to less than £1 when the lender was taken into public ownership in February.
Under executive chairman Ron Sandler, the company plans to shed more than 2,000 jobs – a third of its workforce.
As well as job cuts, Northern Rock plans to shrink the size of its mortgage book to around half the current level in a bid to create a smaller business, focused on low-risk mortgage lending and building up savings deposits.
It aims to pay off the Bank of England loans and free the Government from its guarantees over the business within three to four years before a return to the private sector.