Money: Northern Rock shares worth hanging on to

Nic Cicutti looks at prospects for the latest building society float
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The Independent Online
The building society flotation bandwagon, which recently halted at Alliance & Leicester, Halifax, Woolwich and Bristol & West, will shortly make its last scheduled stop this year at Northern Rock.

Almost 900,000 members, who voted overwhelmingly in favour of Northern Rock's demutualisation, will each receive 500 free shares in what is only the second flat-rate distribution to date.

Those who are both borrowers and savers will receive 1,000 shares each. Experts suggest that the value of a 500-share package could reach pounds 2,000, with 1,000 shares valued at double that amount. However, recent stock market uncertainties have have led some observers to wonder whether this is an over-estimate.

To qualify for shares before the planned flotation date on 1 October, members of the Newcastle-based society must complete and send back a form by 26 September. The forms will give a choice of selling or keeping the shares.

Roddy Kohn, a financial adviser at Bristol-based Kohn Cougar, says: "My advice generally is that unless you need the money for a special purpose, you should try to keep the shares. Northern Rock is a small but well-run society which could well prove attractive to a potential buyer over the next few years.

"It is hard to see it doing so badly that hanging on to the shares is a mistake. The only question mark might be in the event that the current stock market bull run, which has particularly benefited financial stocks, might lead to Northern Rock being somewhat overvalued at flotation.

"There is also a danger that share prices rise heavily in the first day of trading, only to subside slowly in the following months. But over the longer term, these shares are not an unsafe investment."

Members who want to sell their shares immediately can do so through the society's own share sale facility, handled by Hoare Govett Securities.

Selling this way means signing and returning the green form B in the Northern Rock mail-out, headed "Selling Your Free Shares". If the form is received before 26 September, the shares will be sold at a collective auction on 30 September, although additional auctions may follow.

There will be a fixed dealing charge of pounds 10 for each 500-share parcel. Although you cannot sell part of a 500-share distribution, if you are entitled to receive payouts as a borrower and a saver, you may sell one of the two.

If you want to keep the shares, fill in and send off blue form A, called "Keeping your Free Shares". This can either be in the Northern Rock Shareholder Account, or by asking for a share certificate.

You can keep the certificate, which will be sent to you before 1 October, and receive regular dividend payments. Dividends are normally paid in May and October, with the first payable in May 1998.

Alternatively, you will be allowed to place your shares in a PEP, which must be done within 42 days of receiving the certificate if you wish to avoid any tax liabilities.

Placing the money in a PEP generally makes sense if you are a higher- rate taxpayer or if you are planning other PEP investments - many fund managers will allow you to shelter your shares in their PEPs as long as you are prepared to invest in their their own PEPs.

If you have other demutualisation or similar shares which are not already in a PEP, it may make sense to consider "bed-and-PEPing", which involves selling the shares and buying them back inside a PEP.

Such a move may have capital gains tax implications so you should seek advice before doing anything.

For an independent financial adviser near you, call 0117971 1177

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