Northern Rock compensation claim rejected
Former employee says 150,000 private shareholders ‘baffled, startled and angered’ by European court of human rights decision
guardian.co.uk, Wednesday 1 August 2012 13.03 BST
Investors who held in shares in Northern Rock before it was nationalised by Labour in February 2008 have reacted angrily to a long awaited decision by the European court of human rights to dismiss their argument that they should be granted compensation by the UK government.
Dennis Grainger, a former Northern Rock employee who had bought shares through the bank’s save-as-you-earn scheme, said 150,000 private shareholders were “baffled, startled and angered” by the decision, which comes as the fifth anniversary of the run on Northern Rock approaches.
Grainger is the lead plaintiff for small shareholders who have been told by the European court of human rights that the case they brought – along with hedge funds SRM and RAB – was “inadmissible”.
“We do think the coalition should look at this,” said Grainger after the “good” part of Northern Rock was sold to Virgin Money at the start of the year.
The judgment concludes that “it was entirely legitimate for the state authorities to decide that, had the Northern Rock shareholders been permitted to benefit from the value which had been created and maintained only through the provision of state support, this would encourage the managers and shareholders of other banks to seek and rely on similar support, to the detriment of the United Kingdom economy”.
The decision comes as many banks across the Europe face bailouts and after an announcement in March 2010 that the Northern Rock shares were worthless when they were bought by the government. Northern Rock shares were trading at 90p just before it was nationalised, some five months after the run on the Rock began in September 2007, when it had a stock market value of just under £400m.
The accountancy firm BDO, after an 18-month study, concluded the shares were worthless while investors had argued the shares were worth between £2 and £4.
SRM became the largest shareholder in Northern Rock after buying up shares between 14 September 2007 – when the run on the Rock began – and February 2008, just before it was nationalised. It ended up with an 11.5% stake. RAB accumulated an 8% stake over a similar timescale.
Grainger said pensioners who had been relying on Northern Rock shares as their retirement nest egg had died while waiting for the judgment.
The run on Northern Rock began when it emerged that the former building society had turned to the Bank of England for an emergency loan when the markets dried up in the credit crunch. By time it was nationalised it had received £55bn of taxpayer guarantees.