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.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Barn owls are among species that could be affected
charity appeal
Sarah Silverman (middle) with sister Reform Rabbi Susan Silverman (right) and sister actress Laura Silverman (left) at Jerusalem's Western Wall for feminist Hanuka candle-lighting ceremony
peopleControversial comedian stages pro-equality Hanukkah lighting during a protest at Jerusalem's Wailing Wall
Arts and Entertainment
The Bach Choir has been crowned the inaugural winner of Sky Arts’ show The Great Culture Quiz
arts + ents140-year-old choir declared winner of Sky Arts' 'The Great Culture Quiz'
After another poor series in Sri Lanka, Alastair Cook claimed all players go through a lean period
cricketEoin Morgan reportedly to take over ODI captaincy
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

    $200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

    Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

    $125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

    Sheridan Maine: Commercial Finance Manager

    Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

    Sheridan Maine: Regulatory Reporting Accountant

    Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

    Day In a Page

    Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

    Homeless Veterans appeal

    In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
    Could cannabis oil reverse the effects of cancer?

    Could cannabis oil reverse effects of cancer?

    As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
    The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

    The Interview movie review

    You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
    Serial mania has propelled podcasts into the cultural mainstream

    How podcasts became mainstream

    People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
    Jesus Christ has become an unlikely pin-up for hipster marketing companies

    Jesus Christ has become an unlikely pin-up

    Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
    Rosetta space mission voted most important scientific breakthrough of 2014

    A memorable year for science – if not for mice

    The most important scientific breakthroughs of 2014
    Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

    Christmas cocktails to make you merry

    Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
    5 best activity trackers

    Fitness technology: 5 best activity trackers

    Up the ante in your regimen and change the habits of a lifetime with this wearable tech
    Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

    Paul Scholes column

    It's a little-known fact, but I have played one of the seven dwarves
    Fifa's travelling circus once again steals limelight from real stars

    Fifa's travelling circus once again steals limelight from real stars

    Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
    Frank Warren column: 2014 – boxing is back and winning new fans

    Frank Warren: Boxing is back and winning new fans

    2014 proves it's now one of sport's biggest hitters again
    Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

    Jeb Bush vs Hillary Clinton

    Karen Tumulty explores the power dynamics of the two first families
    Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

    Stockholm is rivalling Silicon Valley

    The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
    Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

    Crucified Santa: Urban myth refuses to die

    The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
    Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

    The Boy in the Dress: On set with the stars

    Walliams' story about a boy who goes to school in a dress will be shown this Christmas