COMMENT from Robert S Hunter

Having read in this mornings press the news that the ex CEO of Northern Rock Mr Applegarth is continuing to receive in excess of £30,000/month even though he is apparently no longer associated with the company, it fills me with such disgust and disdain I have to commit my feelings on the matter to print.

It is as obscene as it is grotesque, and a comment on the sort of society Britain has become under the various governments, legislators, and MPs of the last 30 years, that this state of affairs is tolerated and permitted to exist, either by the present management of Northern Rock, or the new owners in the form of this government, or government policy makers our MPs.

If I had been CEO presiding over the self interested cavalier policies, greed and incompetence, which have caused such catastrophe to the life savings of the Small Shareholders and cut short the careers of so many employees, I would have been content with the huge sums of money I had already received, without rubbing sand in the wounds I had inflicted on others, by continuing to take such unjust rewards.

I would have thought Mr Applegarth, in the name of decency, if he has any, would have refused to accept such offensive handouts, whether he is legally entitled to them or not.

This sort of regime upheld by our MPs and legislators, makes communism look positively attractive in comparison, for at least we would know those in charge under communism have only their own interests at heart, whereas at present we are still asked and expected to believe that we live in a fair society and a just democracy.

I wonder if and when President Mugabe is deposed, he will receive such beneficial reward as Mr Applegarth receives?

Robert S Hunter

Licensed Theft

An anonymous former shareholder reported recently:

"My Dear Sirs,

I wish to report to you a conversation that I overheard in pub in County Durham over Easter weekend between a group of people who either worked for the Northern Rock or who were auditors or advisers to that bank.

I used to be a shareholder before the government stole the few shares that I had and that is why when we heard these people talking we were interested.

These people said that the government were fixing the accounts of the Northern Rock to show a loss for that year when really it had made a lot of money so that they could pretend it was not worth anything when it came to working out how much the shareholders were going to be paid.

They said that instead of the accounts showing over £500 million profits they were going to be fixed so that they would show that the Northern Rock had lost £76 million. This would mean that the shareholders would get less and then the government could fix it back again later to show that they had made the money instead. They said this was going to be done in several places like the losses on loans, some things they called sieves that were going to be showed as being worth less than their neat asset value and they said that they were going to stuff everything in these accounts so they could stuff the shareholders.

I don't know if this means anything to you but it didn't sound right to me and they shouldn't be doing it.

These people also said that the people in charge of the Northern Rock were deliberately not getting all that they could from the business that they were getting out of Denmark. They said that the bosses were just bailing out of Denmark for no money when other banks wanted to buy that business and they could have sold the business for a profit but they didn't care because it was only the shareholders that were going to lose out, not them."

An article covering many of these issues appeared in The Sunday Times on 30 March 2008. Below is a summary:

Northern Rock will reveal this week that it has dived into the red on the back of huge writedowns and interest payments made to the Bank of England...Northern Rock claimed in September that it was on track to make profits of more than £500 million...It is understood that Ron Sandler, the bank's new Chief Executive Chairman, is keen to write off as much as possible...Sandler has already closed Northern Rock's Danish savings business...The Government is expected to approve the shareholders' call for a judicial review.

COMMENT from Robert S Hunter

I thought this article from The Times may be of interest to other NR shareholders who have also lost some or all of their savings or had their pension funds devalued over the past few months as a consequence of the widespread greed and the use of creative self-interested accounting practices by those in responsible highly paid positions.

Of course all sorts of reasons are already being trotted out for not giving the public the full story behind their life savings becoming virtually worthless. However this article more than adequately demonstrates that under this and previous Governments, in the grossly overpaid Financial Services Industry entrusted with the care of the life savings of the general public and within the highly paid Government Agencies supposedly appointed to regulate this industry, that crass incompetence and abject failure are hugely and unnecessarily rewarded at the further expense of the taxpayer.

Some of those who are our elected representatives appointed to legislate, have by default enabled this to happen whilst apparently accessing and helping themselves as a matter of course to large sums of public funds as "legitimate and necessary expenses," without sufficient records being kept to enable the Crown Prosecution Service to have any sort of an auditable trail to investigate and prosecute the possibility of isolated or even widespread abuse, but the same old condescending platitudes are trotted out to the public!

Do we have to stomach this sort of sickening regime as a consequence of being one of the wealthiest countries in the world; a country we are told is the home of democracy?

"Nero fiddles whilst Rome burns" and the elderly on fixed incomes who are today's investors rather than borrowers, whose life savings are earmarked by government and industry alike to feed obscene levels of bonus and financial reward to the few, are powerless to do much if anything about it other than put their money under the mattress.

Back in autumn 2007 the Daily Telegraph carried an article questioning what the FSA as Regulator had been doing over the previous 12 months to identify and pre-empt the Northern Rock crisis.

It has taken until late March 2008 for this question to be tentatively answered, the FSA at last admitting that it had done almost nothing, not having carrying out an in depth review for over 18 months, spending more effort on the more visible but relatively less important consumer issues. However the individual responsible for this dereliction has walked away with nearly £400,000 cash and a pension fund over twice that figure as his personal reward for failure provided by the taxpayer, whilst as he is dismissed the authorities heap praise on him for his contribution. It really is a nonsense!

With all this going on in and around the City, around Government Agencies and Government itself; despite being one of the wealthier nations of Europe it is little wonder that the UK has one of the smallest per capita savings records, and large sections of the public are now showing their general disgust, distaste, and disenchantment with their elected representatives' grip on things, by refraining from involvement in politics and refraining from exercising their vote altogether.

It's ironic that against the background of MPs being allowed to abstain or even not turn up to vote at all on contentious issues, these same MPs, now apparently concerned at the public apathy their behaviour and example has encouraged, are discussing the possibility (in a democracy?) of making voting by the public compulsory.

Some of us devote substantial parts of what reduced time we have left drawing Regulators' attention to major errors being made by household name companies all in their favour in the Financial Services Industry, but those appointed to regulate are far too close to those whom they are supposed to be regulating, with the result that cover up or flawed legislation is used to bury without trace perfectly legitimate and sustainable complaints, in the process rewarding failure and wrongdoing and creating an apparently clean slate and a remit for those responsible to continue with inappropriate and unlawful practices.

Without proper control and some degree of integrity to impose perfectly sound existing legislation amongst those in authority, the rot in the barrel of apples and the greed at the top is encouraged to spread, and will spread further.

Is this really the fair society the Labour Party regard as a major part of their mission?

The most outspoken and informed of our elected representatives over the last few months concerning our dysfunctional Financial Services Industry has been Vince Cable in his temporary capacity as Deputy Leader of the Liberal Democrats, whilst those heavyweights in high places in government have refrained from any meaningful analytical comment, for fear of standing up and being counted over contentious but very real issues.

My own experience of trying to report wrongdoing to Government Regulators suggests to me that Northern Rock and its' fall out is just the symptom of a deeply serious and widespread cancer within elements of the Financial Services Industry and some of the Govt Regulators, to cover over the traces of wrongdoing, and in doing so maintain investor confidence and the pay and bonus bonanza for the few in control unchanged.

I'm sure I'm not alone in believing that wrongdoing, sharp practices, and self-interest in financial circles has become so widespread it is condoned and seen as as being quite normal, and treated as such by those involved and by Government Regulators.

I'm sorry for this outburst on my part, but the combination of Northern Rock, my earlier experience at the hands of Friends Provident over a four year period of complaint and the Pension Ombudsman's reaction to wrongdoing when reported, is more than sufficient reason for me to pass such adverse comment on the behaviour of those supposedly in authority.

Robert S Hunter

UKSA Northern Rock Update 26

Legal Action Being Pursued

As I said in the previous note that we issued (all past notes are on the Northern Rock page of our web site at: www.uksa.org.uk/NorthernRock.htm ), we are continuing to look into the legal issues with a view to challenging the Government so as to obtain fair compensation.

Although the Government is setting up an independent valuation of the shares which have been confiscated from you, they have set the terms of reference so that you will not get a fair and unbiased figure. Because of the terms of reference, the answer will almost certainly be very little of nothing, when Northern Rock was in essence a valuable business that will soon recover from its difficulties.

At this time we do not know who the valuers will be or how long they will take to come up with a figure, but it could take several weeks. One thing they will certainly require is a copy of the 2007 accounts which have been promised for publication in March.

Note that not only do we consider the terms of reference unfair, but we consider the whole sequence of events to be prejudicial because the Government is benefiting from its own actions and inactions. It should not be permitted to purchase Northern Rock cheaply when it has played a major role in the erosion of value in this business.

Head of FSA Concedes Failures

Just such evidence of Government incompetence that affected Northern Rock (and damaged the interests of shareholders) was the comment last week by Hector Sants, chief executive of the Financial Services Authority (FSA) who are the regulator for the company. He said: “The standard of supervision of Northern Rock was not acceptable to us and certainly not to myself.”

The 2007 Accounts

One concern is that now the company is under the control of the Government, it is in their interest to have the worse possible set of figures in the 2007 accounts as it might affect the valuation. So will we see any number of write-offs, provisions and exceptional items stuffed into them? We will no doubt soon see.

Capital Gains/Losses

Some UK shareholders might want to take their capital losses and offset them against other capital gains in the current tax year, but it seems unlikely that HMRC will recognise the loss until the compensation figure is announced by the Government. We are looking into this and will try to advise you at a later date as to the tax position. Incidentally UKSA issued a press release concerning the new UK capital gains tax regime last week which you can see on our web site at: www.uksa.org.uk/UKSA_Press057_CGT.pdf . It criticises the fact that gains simply arising from inflation will be taxed as real gains in future. Not that many Northern Rock shareholders may consider this an important issue at present, as you are clearly going to mainly have losses rather than gains, but it shows you what other issues we campaign on.

Shareholders Whingeing?

One or two publications have printed editorial comments recently that have criticised shareholders for complaining about the terms of the nationalisation and the basis of compensation. Here’s one response I sent out to try and put a stop to such ill-informed views:

“To suggest we are "whingeing" when the Government has outrageously set the terms for the evaluation of compensation to shareholders that bear no relation to reality is grossly unfair. All we are asking for is a fair and independent valuation of the company to be paid to shareholders as a result of the confiscation of their property (which of course is enshrined in the European Convention on Human Rights).

The "deferred equity" option you suggest has been considered by us but was rejected on the grounds of practicality, as I told Vince Cable personally when I met him (he has been pushing this option of course without really thinking through how it would work in practice).

In addition to suggest that the company was "bust" when it could no longer fund itself from the money markets is a nonsense. Firstly the Bank of England has a duty under the Banking Act to act as a lender of last resort and it was obvious to everyone that the Government would not let Northern Rock go bust by refusing such support - there were a lot of practical reasons why they should provide such support. In any case, when they first asked for such support they probably didn't in reality need it, but the subsequent leak (the media have a lot to blame in this regard) and the mishandling of the crisis by the Bank of England precipitated the run on the bank which was the crux of the problem. In essence the Government (in the form of the Tripartite Authorities) was as much to blame for the ultimate debacle at Northern Rock as were the company directors for any misguided business strategy.

But the Government should not benefit from their own failings in acquiring Northern Rock on the cheap from shareholders. There were two good private sector solutions on the table when the Government decided to nationalise it (one additional one had dropped out already due to excessive Government demands). We have yet to understand fully why they were not chosen instead of nationalisation, although it may yet come out in court. Was it because confiscating the shareholders property offered "better value for the Government" as Mr Darling put it, or was it because Brown and Darling were dismayed that shareholders were going to vote down the offer from their pal Richard Branson? We do not yet know.”

If you get the opportunity to do so, don’t forget to write similar responses when you see misleading articles in the media. We try to do what we can to counter misinformation and prejudice in the newspapers and on television, but we have limited time and resources to do this at present.

Questions and How to Get Them Answered

Note that I get a lot of questions, particularly via email, which are trivial and repetitious. Please ensure that you look at our web site page to see what has happened in the past and to obtain answers to most questions. There are two specific questions that come up regularly. These are:

1. What compensation will the Government offer? We don’t know because this will be based on the “independent” valuation but in our view it is likely to be very low (e.g. a few pence), or even nothing, because the terms of reference for the valuation make the whole exercise a nonsense.

2. What would the valuation be if an unbiased valuation was performed, i.e. it was done in the usual way by an independent valuer taking the business as it stood at the time of nationalisation (and taking into account all the factors that might have affected it)? As I said on the BBC Moneybox programme, I feel that if I was arguing the case in front of an independent valuer then I would be starting at way over £4 per share. That figure would be the minimum based on the net asset value but other valuation methods might come up with a much higher number – for example £5 or £6 per share. It would be for the Government to argue that their funding was prejudicial to that valuation but as it was given at market rates of interest I think that would be a difficult justification.

We are not going to attempt to do a full valuation exercise at this time (we don’t have all the information to hand to do it), but that gives you the measure of what shareholders might want to contemplate asking for, and how much you are likely to be short changed if the Government only offers you a few pence in compensation.

The Cost of Legal Action

Some shareholders have questioned whether private shareholders can afford the cost of legal action, even if we band together. But that it not necessarily a problem. For example sufficient money was raised for the Railtrack action for a very lengthy and expensive law suit from private individuals. In the case of Northern Rock there were over 400 million shares issued so it only needs a small subscription by each shareholder to raise a very large sum of money. Of course one cannot assume that everyone will contribute because simply communicating with some shareholders can be difficult, but the return to shareholders from the investment of a small amount in a successful legal action could be very large in comparison with the cost.

What We Are Working On

Note that there may not be much news forthcoming in the near future, and our strategy for this group is to continue to build our base of supporters and to raise funds. We will continue with this over the next few weeks while progressing some of the legal issues. Note that I would encourage those of you who have not yet made a donation to do so using the Appeal Form at: www.uksa.org.uk/Northern_Rock_Appeal_Letter.pdf . Many of our supporters have been most generous, with some supporters donating more than once already, but we really do need more funds from all shareholders to keep this group moving along as we are currently constrained in some of the things we can do by lack of cash.

BBC Breakfast TV

Roger Lawson, Chairman of the Northern Rock Shareholder Action Group, has appeared on BBC Breakfast television to discuss the implications of nationalisation for the shareholder.

To view a clip, please click the link below:

http://news.bbc.co.uk/player/nol/newsid_7250000/newsid_7250300/7250313.stm?bw=bb&mp=rm&asb=1&news=1&bbcws=1

The possiblity of legal action

I have had a pro bono consultation with Jeremy Marshall of Bracher Rawlins, a London law firm. This note must not be taken as definitive advice, but is intended to let you know which way the wind blows.

1. In the likely event of legal action such as calls for a judicial review of the Northern Rock nationalisation bill and the basis of the share valuation, it may not be possible for the assessors to start working on a valuation of the shares until the turn of the year.

2. Further legal action when a value is announced seems likely. The Government may make come under pressure to make an an interim payment to shareholders. But if they offer something as full and final settlement , ex shareholders will have to think carefully before accepting - because if court action resulted in more money, those who've taken full and final wouldn't get anymore.

3. Jeremy has approached the lawyers for the largest shareholder to see if they would be interested in joining a few small ex shareholders in this action (and at their cost). Their lawyers are considering this, and their strategy may emerge shortly.

4. There might be a legal case against the discredited former directors, but ex shareholders have lost their focus. It's down to the owner - the Government - to pursue them. This may be a campaign strand, and we'll be running a poll on the issue on the blog (www.nrssg.blogspot.com) to test your opinion.

5. Talking of which , the final vote was over 80% thought that a fair compensation level for our expropriated shares was 438p or more.

6. And on the subject of legal action, the UK Shareholders Association is still planning this, and would run a financed appeal. We'll keep you informed about this. Please let Robin Ashby know separately whether you would be willing to make a financial contribution and if necessary allow yourself to be joined in future legal action.

7. I have (belatedly) received a letter from Bryan Sanderson, the former Chairman , "I was very grateful and encouraged to receive such overwhelming support from the Small Shareholders at the recent EGM."

With best wishes,

Robin Ashby