Northern Rock Shareholders Action Group - Update No. 46

Letter from Andrew Caldwell

Many shareholders have received a letter from Andrew Caldwell of BDO Stoyward concerning the valuation of Northern Rock - he is the Government's appointed independent valuer. A copy of the letter is present on the UKKSA web site here.

Our response to the letter on behalf of shareholders is also present on the UKSA web site here.

In respect of your own response to the letter (all shareholders are invited to comment), we suggest you may simply write to Mr Caldwell and express the view in your own words that the terms of reference for the valuation effectively undermine his independence as a valuer and make a nonsense of the whole process (see below). In reality it is the acquirer of a company dictating the valuation terms for their own benefit.

You should also send a copy to your local M.P. so that he/she is aware of this issue. If you don't know who your M.P. is or how to contact him, use this web site page to find that information.

Note that we have already received quite a few samples of letters sent to Mr Caldwell from our supporters and thanks for those. A typical example is that from Robert Harris which probably represents the views of many.

Unfair Valuation Terms

To remind you: the Valuer is bound to assume that the company was not a "going concern" and was in "Administration", neither of which was true in fact. The company was definitely not in Administration and was trading normally (and the year end accounts for 2007 were produced on a "going concern" basis). In addition assumption have to be made that all financial assistance had been withdrawn by the Government and no future assistance would have been forthcoming - the first part is definitely untrue and the latter seems very unlikely and has not in reality taken place.

Donations Received

Thanks to all those supporters who sent donations in response to our last appeal. We do not acknowledge individual donations unless specifically asked to do so. We don't wish to add unnecessarily to our administration costs, but if anyone specifically wants an acknowledgement or a receipt we are happy to provide one.

It was also apparent from the responses received that a lot of people have changed postal or email addresses since this campaign commenced. Please notify us of any changes in either type of address if you wish to be kept informed.

Bank Dividends Campaign

For those investors who have been hit by the decline in the shares of other UK banks, and limitations on future dividends, we have started a general campaign to try to get more reasonable terms. The commitment by Royal Bank of Scotland, LloydsTSB and HBOS to not pay any dividends for five years is particularly distressing for those people living on dividends for their retirement income. More details of this campaign can be seen on a dedicated page on the UKSA web site here.

If you hold shares in the above mentioned banks you may care to register your interest in that campaign also. We are also holding a meeting for investors in these companies in London on the 11th December which you may care to attend. See the above web site page for more details.

Roger Lawson
Chairman, Northern Rock Shareholders Action Group

Northern Rock Shareholders Action Group - Update No. 45

Company Recovery Ahead of Plan

Among all the welter of bad financial news recently, one announcement by Alistair Darling almost escaped the limelight. This was the information that Northern Rock had now repaid more than half of the £27bn it had borrowed from the Bank of England, and had continued to repay the loan ahead of schedule. This is despite the fact that the housing market is definitely in a much worse state than anticipated when those loans were taken out, but how much the movement of retail deposits back to Northern Rock has been encouraged by the unlimited Government guarantee is not known. However, it reinforces the views of many Northern Rock shareholders when the company was in crisis that it only needed temporary financial assistance to survive and that nationalistion was not necessary.

No Action Against the Former Directors

More details of the company's financial recovery were given in a "Quarter 3 Trading Statement" which is available on the Northern Rock web site. In there is a statement that following an investigation by the company's lawyers they had concluded that "there are insufficient grounds to proceed with any legal action for negligence against the former Directors, and [the board] has no intention of bringing such action."

Of course we did tell you some time ago that there were unlikely to be grounds for such action and that any such investigation was more "hot air" than based on any real hope of identifying grounds for such action.

Government Support for the Banking Sector

On the 8th October the Government announced wider support for the banking sector including about £500bn of total funding under the Special Liquidity Scheme and the willingness to subscribe for both preference shares and equity. UKSA issued a press release which included the following comments: "The provision of up to £200bn under the Special Liquidity Scheme is also welcomed as a short term measure to improve liquidity in the banking system. This and the other measures reinforces the point we have made before concerning Northern Rock that this company was not a special case but was simply one of the first victims of this general crisis in the banking sector. If similar measures based on a private sector solution had been applied to helping Northern Rock instead of the nationalisation that took place, the Government would not now be facing so many disgruntled shareholders and a legal action".

Note though that after the details of the Government support were announced by the companies, shareholders were astonished to discover that it seemed the Government was intent on making large profits at the expense of shareholders. Also it was "nationalisation by stealth" in the case of Royal Bank of Scotland and LloydsTSB as in both cases the Government will probably end up with effective control. Shareholders will also suffer because dividends will be non-existent for some time and profits in the companies eroded by high Government charges on the preferred shares being offered. We issued a press release which spelled out our concerns and it is present HERE.

Press Comment

An article in the Independent by Jeremy Warner on the 7th October included these comments: "Similar policy mistakes were made in Britain over the collapse of Northern Rock. Rather than support the bank with the liquidity it needed, or provide the government guarantees that would have enabled a smooth takeover, Northern Rock was demonised as a bad bank whose reckless expansion deserved to meet its nemesis in nationalisation without compensation. As events have proved, Northern Rock was, in fact, only the outrider for a funding problem that would become common to the banking system as a whole."

The media, and the general public, are now coming to realise that Northern Rock was not a bad bank but one simply suffering from the same problems that all banks have been experiencing. If the steps now being taken had been applied to Northern Rock at an early stage, then the company could have got through it's difficulties relatively easily, and the lack of confidence those difficulties instilled in the whole banking sector could have been avoided.

Reminder re Meeting for Shareholders in London

The UK Shareholders Association regularly exhibits at the World Money Show in London. This is the premier event for stock market investors in the UK. This year we are in addition holding an open meeting for Northern Rock shareholders thanks to the generous support of the organisers, and have also decided that as we have a full two hours available we will also cover Bradford & Bingley in the last hour (many of the issues are similar and some shareholders had the misfortune to hold shares in both companies). Incidentally we do now have a separate "Shareholder Action Group" for B&B shareholders so let us know if you want to go on the contact list for that also.

The World Money Show is at the Queen Elizabeth II Conference Centre on the 14-15 November 2008 and the meeting we are holding for shareholders runs from 10.00 am to 12.00 am on Saturday the 15th in the Thames Room on the 1st floor. Note that Admission to the Meeting for Shareholders and to the event in general is free but you do need to register. To register Online, visit The World Money Show London Web site today HERE.

If you cannot make the shareholder meeting, we will have a stand in the Exhibition hall and you are welcome to come and have a chat on any of the two days that the venue is open.

Campaign Status

We now have about 38,000 registered supporters for this campaign and the numbers continue to rise. It is surprising how many people who held their shares in nominee accounts have only just found out about our campaign.

Please note that with that number of supporters it can prove difficult for us to answer individual questions from supporters, so please excuse any brevity in our responses.

Fund raising is also going reasonably well although we must again ask those who have not yet contributed anything to do so. The judicial review has progressed and the case gets into court on Jan 13th 2008, but we do need to raise more funds to cover our legal expenses and other costs. Please contribute if you wish us to win this fight and get fair compensation for the confiscation of your property. Please remember that you may get several pounds per share compensation if we win this case, but little or nothing if we do not. So please donate however much you can afford. Donations can be made via credit card or debit card from this page of our web site.

Roger Lawson
Chairman, Northern Rock Shareholders Action Group

Northern Rock Shareholders Action Group – Meetings for Shareholders

UKSA has arranged two meetings for Northern Rock shareholders:

On Thursday the 17th July commencing at 6.30 p.m. at the Banqueting Suite, Newcastle Civic Centre, Barras Bridge, NE99 1RD - next to the Haymarket Metro and Bus Stations. They understand parking is available in the council’s car park in Sandyford Road after 6.0 pm. About 50 people have registered so far.

On Saturday the 26th July at 10.30 am at St.Columba’s Church, Pont Street, London, SW1X 0BD. About 40 people have registered for this.

If you plan to attend either venue then please let UKSA know by sending an email to uksa@uksa.org.uk.

These meetings will contain a briefing and explanation on what UKSA have been doing on behalf of shareholders and the status on the legal action. They will also enable shareholders to ask questions of course. They hope to have a representative of one of the large institutional shareholders in Northern Rock speaking at the Newcastle meeting.

These are the first meetings UKSA has held for shareholders since last November

UKSA legal action

An application for a Judicial Review of the Nationalisation Act and the associated Compensation Order was filed on behalf of a representative sample of private shareholders on the 8th May 2008. SRM Global also filed a similar application on that date and RAB Capital subsequently filed such an application in addition (these two companies are the largest institutional shareholders).


A 15 page summary of the grounds for the application can be found on the UKSA website. UKSA continues to recruit members and seek donations to enable this process to proceed.

Northern Rock Shareholders Action Group – Update No. 38 and Notice of Meetings for Shareholders

Meetings for Shareholders

We have arranged two meetings for Northern Rock shareholders:

On Thursday the 17^th July commencing at 6.30 p.m. at the Banqueting Suite, Newcastle Civic Centre, Barras Bridge, NE99 1RD - next to the Haymarket Metro and Bus Stations. Note that parking is available in the council’s car park in Sandyford Road after 6.0 pm, and in nearby public car parks.

On Saturday the 26^th July at 10.30 am at St.Columba’s Church, Pont Street, London, SW1X 0BD. The nearest tube stations are Knightsbridge or Sloane Square which are less than 10 minutes walk away. There is an NCP car park in Cadogan Place, SW1X 9SA, which about 5 minutes away.

All shareholders are welcome, but if you plan to attend either venue then please let us know by sending an email to uksa@uksa.org.uk so we can get some idea of likely numbers of attendees (make sure you advise which venue/date).

These meetings will contain a briefing and explanation on what we have been doing on your behalf and the status on the legal action. They will also enable you to ask questions of course. We hope to have a representative of one of the large institutional shareholders in Northern Rock speaking at the Newcastle meeting.

These are the first meetings we have held for shareholders since last November so please come along if you can – there is no charge of course. Press and other media are also welcome. Incidentally if you can’t make these dates, we are planning a further meeting in London on November 15^th so you may care to note that in your diary.

Northern Rock Looks into the Conduct of Former Directors

Several newspapers reported that Ron Sandler, the new executive Chairman of Northern Rock, had asked lawyers to look into the conduct of the previous board to see if action should be taken against the former executives. Our view is that this is simply “hot air” as there is no obvious ground for legal action under English law. Certainly on the evidence publicly available, and we have examined this of course, there are no apparent grounds for alleging breach of duty by former directors.

However much shareholders and the public might wish to raise the alleged failings of the former board, English law makes such cases very difficult to pursue so long as the directors acted in good faith and to the best of their abilities. Unless clear examples of fraud or malicious intent can be discovered, they are unlikely to succeed.

This seems more likely to be an attempt to divert attention away from the failings of the Government in handling the Northern Rock crisis, and the moral disgrace of the nationalisation without fair compensation, than a realistic attempt to achieve anything. As we have said before, the over-emphasis on the possible mistakes of the former board detracts from an examination of the main causes of the downfall of Northern Rock.

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.

UKSA Northern Rock Update 24

The UK Shareholders Association writes in its latest bulletin:
"No sooner had we issued a note saying how stupid was it for the Government to nationalise Northern Rock than they went ahead with it. The statement from Chancellor Alistair Darling given at a press conference today (Sunday) can be read at:
http://www.hm-treasury.gov.uk/newsroom_and_speeches/speeches/statement/statement_chx_170208.cfm

We immediately issued a press release which can be seen at:
http://www.uksa.org.uk/UKSA_Press058_NRK_Nationalisation.pdf

As the shares will be suspended from trading on the stock market before it opens tomorrow you are effectively locked in and they are no longer saleable. You will have to rely on any offer of compensation from the Government (which clearly will be nil as explained in our press release) or on any legal action we or other parties may pursue.

http://www.uksa.org.uk/NorthernRock_Update_24.pdf

UKSA Northern Rock Update 23

Government About to Make a Decision
It is expected that the Government will make a decision about their preferred solution to the problems of Northern Rock in the next day or two. It was reported by the BBC on Tuesday that the Treasury weren’t happy with either the Virgin offer or the in-house company proposals led by Paul Thompson, although they considered the Virgin one superior. Both contenders were told to go away and improve their offers, otherwise the Government might take the nationalisation route as it would offer better value for the taxpayer.

http://www.uksa.org.uk/NorthernRock_Update_23.pdf

UKSA Northern Rock Update 22

The latest Northern Rock update from the UK Shareholders Association is now available online, in PDF format, at:
www.uksa.org.uk/NorthernRock_Update_22.pdf

UKSA Northern Rock Update 20

The latest Northern Rock update from the UK Shareholders Association is now available online, in PDF format, at: www.uksa.org.uk/NorthernRock_Update_20.pdf

It summarises the House of Commons Treasury Committee report of 24 January, The run on the Rock and laments 'yet another unfair attack on shareholders':

So the report goes on to conclude “that shareholders as a whole must be viewed as taking a risk from which they sought a reward and for which they are now paying a price”. In effect they seem to be implying that it is no concern of theirs that shareholders lose all because the stock market is pure speculation – utter nonsense in my view. Investors rely on fair and adequate regulation of stock market companies and they should be adequately protected against deficient regulation. That is why we have argued all along that the Government has some moral if not a legal responsibility to promote and support the interests of shareholders in Northern Rock because the Government was ultimately responsible for many of the failures that contributed to the difficulties of the company

.

UKSA Northern Rock Update 19

The latest Northern Rock update from the UK Shareholders Association is now available online, in PDF format, at:
http://www.uksa.org.uk/NorthernRock_Update_19.pdf

Earlier Northern Rock bulletins from the UKSA can also be found on the UKSA website.