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.

Lib Dems call for legal action against Northern Rock Directors

From the Sunday Times:

VINCE CABLE, the Liberal Democrats’ Treasury spokesman, has called on the government to launch legal action against the former directors of Northern Rock, over allegations that they “misled” taxpayers.

Cable and Lord Oakeshott, his Lib Dem colleague, claim Northern Rock used unconventional accounting practices that flattered the level of bad debts in its mortgage book.

An investigation by the mortgage bank’s new management has revealed that Northern Rock did not always consider customers to be in arrears until they were more than three months behind with their payments.

The Lib Dems claim this practice undermines the repeated claims by Adam Applegarth, Northern Rock’s former chief executive, that the bank’s mortgage book was of a higher quality than the industry average.

Oakeshott is this weekend writing to Alistair Darling, the chancellor, calling for a full independent audit of Northern Rock’s previously issued accounts. It would be designed to assess whether the Bank of England and the Treasury were misled on the health of the company’s finances when agreeing to lend taxpayers’ money.

Cable said: “Given the amount of public funding that’s been involved, I would have thought there might well be a case here.

“The government tried to argue that all this was caused by events from outer space, that had nothing to do with Northern Rock, and that Northern Rock was run by entirely competent sensible people. It’s subsequently emerged that they weren’t and that they made serious errors.”

Oakeshott added: “I have warned repeatedly in the Lords that taxpayers face a £5 billion to £10 billion black hole. The government are being grossly negligent on behalf of taxpayers in not insisting on an independent audit now to see whether Northern Rock’s auditors and directors are liable for misleading interim accounts and statements issued last autumn.”

Northern Rock’s most recent trading statement revealed that the level of arrears in the bank’s mortgage book had doubled in the first four months of the year.

Ron Sandler, the bank’s executive chairman, said that some of the bank’s controls on arrears had been “inadequate” and that new accounting policies being introduced would see arrears levels “move much closer to the industry average”.

Sandler also said, however, that this would not affect the bank’s previously published report and accounts.

Ministers to blame for Northern Rock debacle

Jon Wood, head of hedge fund SRM, says the Bank of England's bail-out would have saved the ailing lender

LAST week’s volte-face by the Bank of England and the Treasury in providing a £50 billion liquidity package to banks underlines one sad fact: as a direct result of government mismanagement, thousands of Northern Rock staff will needlessly lose their jobs, and approximately 200,000 individuals have lost their hard-earned savings, as the government plans to value their shares in Northern Rock as near-worthless.

If the support had been introduced in August or September, the Northern Rock crisis would never have happened, and British banking would be in a considerably better state.

Until last week both Bank of England governor Mervyn King and Gordon Brown were in denial. They insisted Northern Rock’s problems were of its own making.

Yet Northern Rock’s funding problems were not unique, as demonstrated by the number of UK banks that took advantage of facilities offered by the US Federal Reserve and the European Central Bank. The UK government prohibited Northern Rock from accessing the ECB money.

Northern Rock then suffered the infamous run on its deposits. This was caused by rumour-mongering short- sellers and a leak to the BBC about the Bank of England rescue plan.

Northern Rock was and is a solvent bank. Its assets exceed its liabilities. Even after the government-appointed management team unnecessarily wrote down asset values, the recent accounts show Northern Rock had a tier 1 ratio — a key measure of a bank’s solidity — of 7.7%, well above most other large UK banks.

Not only was Northern Rock solvent, it was more so than most of its competitors. Even so, large shareholders, including ourselves, were willing to inject hundreds of millions of pounds to express support and give the government comfort.

Comments by King and the government that insulted Northern Rock’s “business model” are confusing since Northern Rock was operating within the relevant liquidity ratios and guidelines laid down by the FSA.

The expansion of mortgage lending in the UK, encouraged by Brown himself during his years as chancellor, has been achieved because banks, with the full approval of the FSA, have obtained hundreds of billions of pounds on wholesale markets.

Had the liquidity scheme announced last week been in operation in August or September last year he would not have been able to refuse to lend to Northern Rock.

If Mervyn King and Gordon Brown opposed the wholesale funding of the UK banking system, they should have been much more vocal about their concerns before last August. Similarly, if the Bank of England was unwilling to act as lender of last resort, UK banks and the FSA should have been informed immediately, not least because it would have breached the terms of the memorandum of understanding entered into by the FSA, the Bank of England and HM Treasury. The FSA’s report on Northern Rock explicitly stated that the FSA believed that the Bank of England would always act as lender of last resort.

Even today, Northern Rock still has an equity book value of more than £1.3 billion.

We are confident that when it comes to the end of its “temporary” period of public ownership, the government will be able to sell the shares it has taken from Northern Rock’s shareholders for significantly more than the current book value. If the Bank of England had covertly supported Northern Rock as lender of last resort, approximately 2,000 jobs would have been saved, the UK banking system would have been preserved, we would not now have a prohibitively high cost of borrowing, and approximately 200,000 shareholders, predominantly from the northeast, would not have lost their savings.

Taking It To The Streets....

The campaign to win a fair deal for Northern Rock small shareholders is taking to the streets.

Dennis Grainger, a volunteer with the UK Shareholders' Association (UKSA), will be highlighting the campaign with a stall in Newcastle’s Northumberland Street on Friday, April 25 and then in Sunderland’s Market Square on Saturday, April 26, collecting signatures on a petition calling for changes to the way compensation for shareholders will be assessed.

The UKSA says the Government has "rigged" the rules of the review body it set up to rule on how much shareholders should receive. The valuation will be based on a number of assumptions the association says are untrue, including that the bank is in administration and unable to continue as a going concern.

The terms are designed to ensure as low a price as possible for the business – and UKSA is seeking a judicial review of the valuation scheme.

"The vast majority of small shareholders in this area hold only 500 shares, and most have held them for years – many, indeed, since demutualisation of the old Building Society ten years ago," said Dennis.

"These shares were worth more than £6,000 only a few months ago.

"To add insult to injury, the Government's 'rigging' of the terms of reference will tie the hands of the review body and, it is widely believed, will result in shareholders being offered a measly 5p a share – i.e. £25 only – for their £6,000 holding.

"My hope is that shareholders will come up and find out more about the campaign.

"I believe their support will help win the campaign for fair compensation for ordinary people who have had their shares 'seized' by the Government." Dennis will welcome any help and support that NRSSG members are able to give him on April 25 and 26; his stall will be in operation at both locations between 8.00am and 6.00 pm. We urge you to get along and help bring more attention to the campaign for fair and proper compensation.