Friday 18 January 2008

Chancellor looks to refund Rock investors

The UK Government is creating fresh plans to compensate angry Northern Rock shareholders as nationalisation of the mortgage lender draws even closer.

Alistair Darling the current UK Chancellor is eager to avoid protracted legal battles with investors who could have seen their holdings in Northern Rock wiped out if ministers decide to take the bank into public ownership.

It marks a change of heart by Darling and Prime Minister Brown, who have consistently said their priorities in solving the crisis are financial stability, savers and borrowers, and the taxpayer with shareholders buttom of the pile.

But hedge funds SRM Global and RAB Capital, which together own 18% of Northern Rock, have threatened to sue the Government if it is nationalised. They argue the bank is worth about 400p a share.

While it is highly unlikely the Chancellor will agree to compensate shareholders by anything like as much, the Treasury is ready to compromise. When the Government nationalised Railtrack, it eventually agreed to pay compensation to shareholders of 242p a share, the market price on the day before the company was put into administration.

If followed the threat of a High Court challenge, something the Government wants to avoid this time around.  Shares in Northern Rock crashed to a new low o 52p earlier this week before closing down just 1.25p at just 68p.

Although shareholders insist nationalisation would be a disaster for Northern Rock, the fact the Government has accepted it may have to pay compensation represents some sort of victory.

Goldman Sachs the investment back has been under increasing pressure recently to come up with a financial package to push through a sale and stave off the nationalisation of Northern Rock.

Although a successful rescue bid by Sir Richard Branson’ Virgin Group , Luqman Arnold’s Olivant, or a standalone option rests on Goldman raising enough finance to fund a deal.

Compare the true cost of over 100 Share Dealing Accounts including the cost per trade and broker's admin charges.