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.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
Mark Dampier: An infrastructure fund that builds returns by taking different roads
Simon Read: Timeshare owners accuse Macdonald Resorts of land grab
Donald MacInnes: Let's pretend Scotland won and now a salmon is running the country
10 tips for taking out a personal loan
Bargain Hunter: Win a new iPhone 6
- 1 Mario Balotelli: Staff at arson-hit Manchester Dogs' Home convinced Liverpool striker is behind five-figure donation
- 2 Friends 20th anniversary: Alison Jackson photographs reunited cast
- 3 A bottle of wine a day is not bad for you and abstaining is worse than drinking, scientist claims
- 4 The response to my Pizza Express review has been overwhelming, and taught me a lot about journalism
- 5 Free U2 album: How the most generous giveaway in music history turned into a PR disaster
Daniele Watts: Django Unchained actress detained by Los Angeles police after being mistaken for a prostitute
Scottish independence referendum: A nation divided against itself
Scottish referendum results: Cross-party consensus collapses amid Tory-Labour spat on the 'English question'
Scottish independence: David Cameron is becoming the 'George Bush of Britain'
Russia freezes Ukraine into submission: Kiev admits country doesn't have enough fuel for winter
Scottish independence: The Queen breaks silence on referendum debate – as think tank warns of £14bn black hole if Scotland votes Yes
iJobs Money & Business
£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...
Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...
£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...
To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...
Day In a Page
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
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize