Legal risks put firms off taking on Northern Rock valuation
Thursday, 8 May 2008
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The Government is struggling to find an independent valuer for Northern Rock to determine what, if any, compensation shareholders should receive for their stakes in the nationalised bank.
Industry sources said that accountants, investment banks and other potential valuers were wary of taking on the job because of the potential legal and reputational risks involved. Independent valuations are highly controversial at the best of times and Northern Rock would be a major headache.
On 17 February, when nationalisation of Northern Rock was announced, the Government said it would appoint an independent valuer of the bank's shares. It made the unusual move to try to thwart litigation from the hedge funds SRM Global, RAB Capital and small shareholder groups.
At the time, the Treasury indicated that the valuer would be named within weeks, if not days. But almost three months later, the search goes on.
The legislation to nationalise Northern Rock effectively tied the hands of any potential valuer by prescribing that the bank should be assessed on the basis that it had received no state support. Experts said this remit would probably lead to a valuation of little or nothing.
An industry source said: "The difficulty for the people they have approached is that they don't want to get embroiled in litigation and they don't think they can deliver within the parameters of the brief they have been given."
Candidates to value the bank would include major accountancy firms, investment banks and other financial institutions. The Government would need to get a major name on board to give the valuation legitimacy. PricewaterhouseCoopers, Northern Rock's auditor, and KPMG, which has advised on other matters, would be ruled out because of conflicts of interest. Deloitte and Ernst & Young declined to comment.
A valuer could face the anger of 180,000 small shareholders, many of them based in the North- east, if it gave a negligible valuation. The Northern Rock Shareholder Action Group has accused the Treasury of rigging the process and has said a truly independent valuation could value the bank at £5 a share.
SRM, which along with RAB built up holdings of almost 20 per cent, has threatened to sue the Government for breaching European human rights laws. The funds argued before nationalisation that Northern Rock was worth at least £4 a share.
