InvestmentsSep 1 2017

Northern Rock shareholders renew compensation campaign

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Northern Rock shareholders renew compensation campaign

Northern Rock shareholders who had their holdings wiped out when the British government nationalised the bank almost a decade ago are renewing their fight for compensation.

The campaign group, which is supported by the UK Shareholders’ Association, has said it is finalising its submission to the government for a review of how the nationalisation was handled.

Dennis Grainger, chairman of the Northern Rock Small Shareholders sub-committee, disputes the zero valuation given to the bank’s equity by an independent valuer before its nationalisation.

He said some of the profit made by the government on the sale of Northern Rock’s assets should be returned to his 160,000 members.

Mr Grainger said: “Something approaching £9bn profit – after the Rock repaid all loans with penal interest – now accruing to HM Government to us constitutes ‘undue enrichment’.

“It is for us surely absolutely fair that some of that huge profit should be returned to the owners – who, after all, owned the assets which created it but had them forcibly removed for nil – whilst other bank shareholders were treated so differently.

“We are close to finalising our submission to government for a review of the handling, how we lost out, and how we feel it would be fully justified for us to now be treated fairly and compensated.”

Last year the government received £13bn from the sale of former Northern Rock mortgages to a US private equity firm - £280m more than the book value of the loans.

In September 2007 Northern Rock received liquidity support from the Bank of England because of its exposure to credit markets during the financial crisis.

Following several failed bids to buy Northern Rock, including from Virgin and Bradford & Bingley, the bank was nationalised in February 2008.

Virgin Money eventually bought Northern Rock for around £1bn from UK Financial Investments, the organisation set up to run the government’s bank holdings.

The zero valuation on Northern Rock’s equity was upheld following an appeal to the Upper Tribunal by the bank’s shareholders in 2011.

A spokesman for HM Treasury said: "When we intervened in Northern Rock we legislated to compensate shareholders based on the valuation of an independent expert. They assessed that no compensation was due as the bank would have failed without taxpayer support.

"We will use any proceeds resulting from the sale of former Northern Rock assets, and any other financial assets acquired during the financial crisis, to recover the significant costs incurred by the taxpayer."

damian.fantato@ft.com