Private Investor: Don't waste your sympathy on shareholders

Writing as a former small shareholder in Northern Rock – and I emphasise the former part here, I'm glad to say – I confess I have very little sympathy for my former fellow owners of the bank. They knew, surely, that you can lose your shirt on shares; that equities can go down as well as up; that you shouldn't put money into shares you can't afford to lose; and that investment is a matter of research and understanding. Or at least if it isn't, and you're effectively gambling, you do that with your eyes open too.

I lost money on my holding, which, as I wrote in these pages, I thought was a good idea at 660p. I got out at 440p. Lucky.

No one made anyone buy these shares. Indeed, quite a few of the small shareholders will have received their investment at nil cost when the former building society was demutualised in 1997. Even if they receive but a penny piece for their stake when the dust settles, that penny will be pure profit.

Northern Rock shareholders have also had the benefit of a decade of "progressive" dividends, reaping the returns from a business model that was lauded when it was doing well, but which eventually ran out of rope.

I agree that few, if any, pointed out the weaknesses of the Rock's business approach, unusual as it was and removed from more conventional banking practices. To rely so heavily on wholesale money markets, rather than, say, retail depositors, was not condemned by many.

Reading the money pages of the papers, blogs and mags, you'd understand why so many people purchased shares in this go-ahead bank at £12 plus, thus being doomed eventually to lose 95 per cent of their punt.

Still, this was no fraud. The facts about Northern Rock's policy were abundantly clear. The market was never misled. No one lined their own pockets. The world just turned the wrong way for Northern Rock, and, well, life's like that.

In fact, something of the same argument might even be applied to the depositors. Again, if you're going to entrust a financial institution with tens of thousands of pounds of your savings, you might at least enquire what would transpire in the worst case scenario. There again, the information was all in the public domain. The modest extent of guaranteed investor compensation – about £30,000 – was in the public domain. Again, there is a case for letting the depositors go to the wall if they were foolish enough to ignore this basic prudential principle. Naturally, that might have serious consequences for the rest of the system, so I can understand why the Bank of England chose to intervene on the Treasury's behalf. However, as I say, the case for letting the depositors go hang last September hasn't really been made.

Clearly, no one should trust more than £30,000 in cash to a single bank; and I've got my doubts about the security of nominee accounts, too, but that's another story. We might all prudentially put a little into National Savings too, simply because they are the only state-guaranteed savings provider (apart, that is, from Northern Rock nowadays). And so on. Just as banks ought to apply ratios and have prudential rules and reviews of their activities, so ought private investors.

One of the leaders of the shareholders' rebellion at the Northern Rock extraordinary general meeting last week went on the radio to state his case. His argument – I kid you not – was that if the Government wanted people to buy shares in denationalised industries then they should make sure that the shares performed well. Hmm.

I don't know where to start. First, government has no such obligation. Second, Northern Rock wasn't denationalised and was never the property of the state (though it may be soon). Third, the shareholders' equity in Northern Rock wouldn't even be worth what it is today without vast taxpayer funding behind it. A "fair price" for shares at nationalisation should be determined by an independent arbiter. I wouldn't expect it to be higher than where the shares stand now. The hedge funds will lose billions. Boohoo.

Northern Rock doesn't need time to pull itself together. It cannot do so. It is over. The business is kaput and it can be best served by being taken into public ownership with a minimum of fuss. It will be parked until after the general election and then quietly sold on for whatever pittance it will fetch. So, I'm sorry to say, Northern Rock's excellent and blameless staff lose their jobs, the biggest injustice of all. Shareholders will surely lose out too. So, as taxpayers, will everyone else.