Northern Rock compensation

By Pradeep Chand

I had a meeting with Andrew Caldwell (the Government's Northern Rock share valuer)on April 8th and I was able to convey all my views on Valuation. The key points I made at the meeting were:-

1. The Valuation should be professional and independent, capable of scrutiny by all stakeholders. The Valuer had a Duty of Care to present the negative impact on Valuation of Tripartite mismanagement of the Leak / Run, miserable supervision during September 2007 to February 2008, piecemeal and fragmented approach. Government conditions not defensible: only rational process would be to "Balance" these with £3 Billion of destroyed embedded value.

2. Shareholders are long term savers. Never allowed to vote on private sector bids or Rights Issue.

3. Discrimination evident if compared with terms for Bradford & Bingley valuation, waiving rules on Lloyds takeover of HBOS, and £1.6 Billion gift to Nationwide to resolve Dunfermerline. SLS and capital injections were 12 months too late. SLS would have enabled NR to flourish as a Going Concern.

4. Regard £3.3 Billion government equity injection in April 2008 as key indicator of "Imputed Value" (no rational investor would inject this unless NPV of future cash flows were OVER £3.3 Billion)

5. TSC minutes reflect badly on Governor of BoE “It could have gone either way" with regard to Run. FSA had admitted serious errors in Regulation. National Audit Report highly critical of Treasury. Mervyn King admitted to Robert Peston that Run could have been averted. Guarantees given Four Days Too Late. ALL Tripartite members failed.

6. Suggested that 96 pence was a rock bottom compensation value (heavily weighed down by worry over nationalisation). Fair Value was in the £3.75 to £6.45 range. Strongly PRAISED SRM and RAB support of share price, suggested we levy a 90% tax on Lansdowne and other Short Sellers to fund part of Compensation to NR shareholders.

7. Pointed out my personal distress, by pass -- even wearing heart monitor at meeting.