Northern Rock investors will not get compensation

Taken from The Guardian

Thousands of Northern Rock investors have suffered a setback in their claims for compensation following the nationalisation of the Newcastle-based lender nearly two years ago after the independent valuer concluded that there was "no value" in the bank's shares.

After receiving "several thousand" responses, the independent valuer Andrew Caldwell published a consultation document in which he concludes that shareholders should receive "no compensation".

His pronouncements came as the government said the nationalised lender could be split in two – in to a "good" and "bad" bank – on 1 January. However, government sources warned that hopes that the "good" part of the bank could be sold before an election were rapidly fading.

The division of the bank, which has been sanctioned by Europe, will have implications for mortgage customers of Northern Rock as some customers will be placed into the "bad" bank.

The Treasury select committee of MPs, which yesterday signalled it would begin a new inquiry into why some banks were deemed "too big to fail", is also expected to weigh the pros and cons of Northern Rock being turned back into a mutual – a status it held before 1997.

Responding to a campaign at Westminster, partly organised by the Co-operative Party and which has seen 100 MPs sign a parliamentary motion jointly calling for the bank to be remutualised, the committee will look at the "relationship between size and risk, and business model (including mutual models) and risk".

The investigation into whether shareholders should be compensated has taken longer than expected, Caldwell, a partner at accountants BDO Stoy Hayward, admitted. He encountered difficulties in obtaining the information he needed – and had been promised – when he was appointed by the Treasury 14 months ago. He did not receive some of the information until last month, further delaying the publication of today's consultation document. His report has cost £4.5m.

But shareholders, led by hedge fund manager Jon Wood, who have demanded compensation from the government and are determined to carry on their fight and are ready to take their claim to the European court of human rights in Strasbourg.

Wood, who is awaiting a decision from Britain's new supreme court about whether the methodology used by Caldwell can be challenged, said: "I do really think we'll get justice in the end."

Under the terms of his appointment, Caldwell based his calculation on the lender being in administration and no longer "a going concern" after all assistance from the Bank of England and the Treasury had been withdrawn.

He calculated how much money Northern Rock would have had left for shareholders after it had repaid the £25bn loan from the Bank of England, granted in September 2007 when it experienced funding difficulties during the credit crunch.

He concluded that it was "unlikely" Northern Rock could have been sold in its entirety and therefore searched for any assets the lender could have sold to raise the necessary funds. Following a complex analysis, he concluded that the lender would actually have had no money left after repaying the loan and would have been "in a deficit" of £5.7bn.

However, Wood and other shareholders have argued that the basis for the review for compensation should have assumed that the lender was still a "going concern" when it was nationalised. If this had been the case, shares in Northern Rock might have been valued at £4, Wood argued.