Northern Rock investors will not get compensation
Thousands of Northern Rock shareholders are being told today that they are not entitled to compensation following the nationalisation of the Newcastle-based lender nearly two years ago.
After receiving “several thousand” responses, the independent valuer Andrew Caldwell has published a consultation document today in which he concludes that shareholders should receive “no compensation”.
Caldwell admits that his investigation has taken longer than he originally hoped because of the difficulties he encountered 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.
Caldwell based his calculation on how much money Northern Rock would have had left for shareholders if 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 been unable to repay the loan and would have been “in a deficit” of £5.7bn.
Caldwell reached this conclusion even though Northern Rock had £106bn of assets on its balance sheet. They would have fallen short of the amount needed because Northern Rock would have required a quick sale which would have forced down their price, he said. Caldwell assumed that £50bn was immediately available for sale to repay the loan – largely mortgages, government bonds and cash – but applied discounts to their values that left a deficit of £2.4bn. This rose to £5.7bn once he assumed an administrator was then appointed and forced to sell further assets at distressed prices. He insists he made “optimistic assumptions”.
In a letter sent to shareholders today, Caldwell stresses that he is still in a consultation phase and asks for responses by 29 January.
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Source : The Guardian
