Predators circling Northern Rock

After Virgin Money leaks to the BBC, now there are leaks by J C Flowers to the Sunday Times (4th September) about their plans to acquire Northern Rock.

Always nice to know the vultures are circling the body of  a long-loved friend....


Both are said to have made indicative offers of around £1 billion - meaning  a loss for the taxpayers of £400 million (something we have long vbelieved is unnnecessary but being pushed for political expediency)

Virgin Money is backed by "American dealmaker Wilbur Ross and the University Lecturers' Pension Fund" Do our readers at Newcastle, Northumbria, Durham, Sunderland and Teesside Universities know or care?

J C Flowers is alleged to be backed by the Chinese Government through its state investment fund CIC.
It owns the Kent Reliance Building Society (which pays amongst the highest rates of interst to savers) and One Savings Bank.  It is chaired by Sir Callum McCarthy, former chairman of the Financial Services Agency at the time of the Northern Rock Crash.

Both  "bidders" first expressed interest in  Northern Rock in 2007.

If we've got any facts wrong, or you are also bidding for the Rock, we'd be happy to hear from you direct...

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Northern Rock latest accounts published (first half of 2011)

HEADLINES
- loss reduced
- value of the business down
- likely sale price around £1 billion
- remutualisation unlikely as Yorkshire and Coventry Building Societies seem to lose interest

The BBC reported the following details

Publicly owned Northern Rock plc has reported a pre-tax loss of £68.5m in the six months to 30 June, compared with a loss of £142.6m the previous year. The company was created last year after the lender was split between in two as a precursor to a sale

The deadline for bids ended last week, with Virgin and JC Flowers reportedly interested.

There have been no reported bids from building societies. At least two, Coventry and Yorkshire, have ruled themselves out of the bidding.

The second part of Northern Rock - Northern Rock Asset Management - holds the bank's more risky loans, which might not be paid back. It is not due to be sold.

Sale

Northern Rock PLC said it expected to return to profit in 2012 and hoped to return to private ownership shortly.

The bank, currently owned by UK Financial Investments, did not announce a precise timetable for the sale process.

"We are pleased with the level of interest we have received and will continue to explore the sale option over the coming months," said the bank's financial statement.

The bank said its reduced losses were the result of a rise in income from interest on loans - especially mortgages - and lower costs.

However, lending actually fell. Gross lending, including retention business, was £1.5bn in the six months to 30 June 2011, compared with £2bn the previous year.

The bank said the retail environment remained tough and competitive - especially while bank interest rates remained low, limiting potential profits on loans.

"The environment remained challenging for a small, predominantly retail-funded, bank like Northern Rock," the bank said.

Northern Rock for sale?

It was an interesting and eloquent speech by the Chancellor that sees Northern Rock being sold, or at least part of it, but do the former shareholders actually care?

The Chancellor expects to enrich the tax payer by around £1billion in the sale of Northern Rock plc, otherwise termed "the good bank", yet he refuses to honour the rights of the former shareholders and actually pay fair market value for the goods taken by the former Labour government.

When the so called "bad bank" is sold, it is highly likely that the government will not only recoup any investment it made in Northern Rock but will enrich itself with a cool profit "in the interests of the tax payer".

Given that the 180,000 private shareholders in Northern Rock were or still are taxpayers,
we fail to see how this biased transaction is in their "best interests".

Mervyn King also seemed to acknowledge that the main issues stemmed from the UK's change in capital adequacy back in the late 1990's and the "light touch" regulation of the financial markets as a whole. Could this be seen as an admittance of failure not with banks themselves but with the fraternity charged with the governance of the financial markets?

Despite these admissions of value in Northern Rock and the failure of the regulators that gave permission for the banks to operate as they did, this still sees the shareholders penniless.

If, as our rights allow, the bias implemented by the government is ignored, this would see that Northern Rock was actually worth something when it was seized from us, worth quite a considerable sum in fact.

The assessments of value ascertained in the legal cases brought by SRM Global, RAB Capital and the Small Shareholder Plaintiffs (now awaiting the verdict of the European Court of Human Rights) and more recently a separate case in the Upper Tribunal led by Harbinger Capital, again supported by the Small Shareholders sees significant value in the assets of Northern Rock on the day of nationalisation in 2008.

Whilst arguing different in the aspects of legislation, policy and application of value, it is clear that without the bias of the governments terms and conditions and analysis of the assets and use of terminology (which in real life are impractical and unworkable) that we expect could bring about value to the former shareholders of between £4 and £7 per share, but this would need to be confirmed in a full, professional valuation without bias or prejudice one way or the other.

This group continues to support and represent the views and opinions of the former Northern Rock shareholders across the board and we will continue in our quest for fairness.

Ongoing Legal Action

Further to update 70 in March this year, we still await the European Court of Human Rights verdict of the main legal case initially heard in the High Court in January 2009 although the expectations on a timescale are late 2012 or early 2013.

More recently, as indicated by Mr Caldwell in his final statement in 2010, small shareholders have made numerous representations to the Upper Tribunal. Many of the submission were unfortunately out of the jurisdiction of the Upper Tribunal and whilst valid and heartfelt, couldn't be considered in that forum.

The NRSAG Committee considered these in detail with advice from David Greene at Edwin Coe solicitors from which Chris Hulme made a personal submission representative of as many of those views as could be considered by the Upper Tribunal.

As Harbinger, the lead institutional investor, had already covered most of the submissions
and cases made by individual shareholders, they were better served in a personal submission by Chris Hulme in support of the main points of Harbinger with the costversus benefit aspects also in mind from your donations and contributions.

What does this mean for the former shareholders?

Whilst the news of the Governments intended sale price provides the confirmation that Northern Rock still has value, the news of its intention to sell Northern Rock plc will have no bearing on the shareholders receiving compensation as the funds raised from the sale will head straight to the governments' pocket and will continue to leave ours well and truly empty.

The case continues...

Chris Hulme

Chairman

Tel: 07775 794 291

Email: northernrock@uksa.org.uk [mailto:northernrock@uksa.org.uk]

On behalf Northern Rock Shareholders Action Group

Northern Rock lost £232 million - but pays bonuses

Nationalised lender Northern Rock has posted losses of £232.4m in 2010.

But the company said it was making progress, with income up and costs reduced during the second half of its financial year.

Despite the loss, Northern Rock says it is paying staff £13.1m bonuses for last year.

The bank was split into two parts in 2010 - assets and banking - to help its eventual sale back to the private sector.

James Ferguson from Arbuthnot Securities told the BBC Northern Rock is a ''very different beast to the bank we saw before''.