Northern Rock shareholders tell Theresa May 10 years on: 'Give us back the money stolen by the Government'

Ten years on from the start of the financial crisis, shareholders who lost everything they invested when Northern Rock was nationalised urge the PM to investigate how the Government 'shafted the little people' 

Adam Lusher
Thursday 14 September 2017 14:07 BST
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The run on Northern Rock became one of the defining moments of the financial crisis
The run on Northern Rock became one of the defining moments of the financial crisis (GETTY)

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Ten years after the run on Northern Rock heralded the start of the financial crisis, small investors whose shares became worthless when the bank was nationalised are to ask Theresa May to open an investigation into how they were 'ripped off' by the Government.

More than 100,000 investors – many of them pensioners – saw the value of their holdings completely wiped out when Northern Rock was nationalised following the first run on a British bank since 1866.

Many of them had been people of modest means, customers of Northern Rock who had got their shares in 1997 when it ‘demutualised’ and switched from being a building society to a bank.

They thought they had a ‘nest egg’ invested in a solid provincial bank, the UK’s fifth largest mortgage lender whose charitable foundation showed it remained true to its North East roots.

But after the BBC’s then business editor Robert Peston revealed Northern Rock had asked the Bank of England for emergency financial support, huge queues formed outside branches on September 14 2007, as customers rushed to get their savings out, fearing the bank was about to go bust.

The run on Northern Rock later came to be seen as the moment when the first British victim was felled by the financial crisis that led to austerity. The queues of anxious customers became one of the defining images of the economic downturn.

Northern Rock was nationalised in February 2008. Gordon Brown’s government insisted this was necessary to help save the economy and said the bank was not a going concern and was in administration.

A Government-appointed valuer subsequently said the bank was worthless when it was nationalised, meaning Northern Rock shares had zero value and shareholders should get nothing in compensation

The Northern Rock Small Shareholder Action Group has been fighting this ever since.

While they accept that there is a risk that share value can go down as well as up, they say that the zero valuation was based on the “false assumption” that Northern Rock was in administration.

Instead they say that the bank was never insolvent and in fact still retained considerable value.

When they appointed a valuation expert of their own, they were told that at the time Northern Rock was nationalised, their shares were worth no less than £3 each and probably much more.

About 150,000 small investors, they claim, had their savings “stolen” by a “disingenuous” government which had been scheming “to prepare this valuable solvent company for sale at a profit to the taxpayer”.

Now, the shareholders are to present a letter to 10 Downing Street, along with a summary of the “detailed and fastidious research” they have commissioned, in order to persuade the Prime Minister to investigate their case.

Speaking before handing in the letter on Thursday afternoon, Dennis Grainger, chairman of the action group, told The Independent: “They [Gordon Brown’s government] nationalised the company, took everything and wiped out the shareholders.

“These weren’t shareholders as we often think of them.

“The majority I spoke to in the North East were just widows generally, older people in their sixties, seventies, eighties and even nineties – small, ordinary, decent salt-of-the-earth-types. They got their shares after the bank was formed through demutualisation.

“They had never bought a share in their lives, and wouldn’t know how to sell one.

“They just had their shares stolen from them. The ‘little people’ were rubbed out.”

Mr Grainger, 71, a former Northern Rock employee who says he lost £114,000, added: “We believed the Government rigged the valuation. It was absolute nonsense, contrived to remove the shareholders from the equation.”

The irony, he said, was that because Northern Rock had been based in Newcastle, drawing many of its customers turned shareholders from the surrounding area, Gordon Brown’s Labour government was effectively “stitching up” its supporters in the Labour heartland of the North East.

“The Government effectively shafted them,” he said. “They just didn’t count as far as the Government was concerned.”

In the intervening years, the action group has challenged the zero valuation of Northern Rock shares at a High Court judicial review and in the Appeal Court, but lost both times.

In 2009 the Appeal Court dismissed the shareholders’ claim that the valuation had been a “charade” and agreed with the Government that if the Bank of England and Treasury had not pumped money into Northern Rock, it would have folded because it couldn’t pay its debts.

The action group, however, has been given fresh hope by a BBC documentary broadcast on Monday in which Mervyn King, who was Governor of the Bank of England in 2007, appeared to reveal that he had advocated paying shareholders if Northern Rock ever made a profit.

The shareholders argue that the Treasury is indeed set to make a profit on the £37bn it made available to bail out Northern Rock.

This is because it has recouped much of the money through the sale of the bank’s assets, reducing the debt owed to it by NRAM, the body created to manage Northern Rock’s loans, to £4.6bn.

Since the Treasury owns all the equity in NRAM, which would bring in £4.7bn if sold at book value, it now appears the Government is set to make a profit.

Some of this, Mr Grainger argued, should go to the shareholders, as proved by Lord King, who was shown telling the BBC's Inside Out North East: “My plan was that the Government would acquire the shares legally by saying to the shareholders: We will ensure that you do have the claim on the residual value. I think that would have been a fair deal. [But] the lawyers in the Treasury said that wasn’t feasible.”

Mr Grainger said: “He was a bit late in saying it, but what Mervyn King has just said is significant.”

The Treasury, though, has pointed out that the zero valuation was upheld in court, and that it is obliged to recover “the significant costs incurred by the taxpayer” of the Northern Rock bail out.

A spokesman added: “When we intervened in Northern Rock, we legislated to compensate shareholders based on the valuation of an independent expert.

“They assessed that no compensation was due as the bank would have failed without taxpayer support.”

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