Private Investor: Don't waste your sympathy on shareholders
Saturday 19 January 2008
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.
Scottish Power hit with sales ban by regulator
Simon Read: You're guilty until proven innocent when HMRC sends in the tax credit detectives
There are 'dark corners' of the investment and pensions industry, says Pension Minister
Midweek Money: The end (of the tax year) is nigh: act now
Bank-beating exchange rates on your international payments
- 1 What happens to your body when you give up sugar?
- 2 Have sex with your iPad thanks to the new sex toy no-one asked for
- 3 The 'sex selfie stick' lets you FaceTime the inside of a vagina
- 4 Why you're almost certainly more like your father than your mother
- 5 Westboro Baptist Church couldn't picket Leonard Nimoy's funeral because they didn't know where it was
Durham Free School: 'Creationism taught at' free school facing closure
Nearly 100,000 of Britain's poorest children go hungry after parents' benefits are cut
End of the licence fee: BBC to back radical overhaul of how it is funded
Nigel Farage promises Ukip will not 'stigmatise' would-be migrants – and says he wants 'everyone to speak the same language'
Ex-head of MI6: 'We shouldn't kid ourselves that Russia is on a path to democracy'
Most people think legal tax avoidance is just as wrong as illegal tax evasion, poll suggests
iJobs Money & Business
£8 per hour: Recruitment Genius: This Pension Specialist was established early...
£30 - 35k + Bonus & Benefits: Guru Careers: We are seeking an Executive Assist...
£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...
Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...
Day In a Page
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads