INVESTORS who lost billions when Northern Rock was nationalised to save the banking system from collapse will go without a penny in compensation after a Court of Appeal ruling.
New York-based hedge fund, Harbinger Capital Partners, has fought a marathon legal campaign to prove that its shareholding in the bank – once valued at £300m – was at least worth something when the government was forced to step-in in February 2008.
However, by a majority of two judges to one, the Court of Appeal ruled that Northern Rock was by then nothing more than a worthless husk, having taken £27bn in Bank of England loans to keep it afloat and another £29bn in Treasury guarantees for retail depositors.
Harbinger insisted that the wrong method had been used to place a value on the shares prior to nationalisation. The reality was that, despite all its troubles, Northern Rock’s balance sheet still showed that its assets exceeded its liabilities at the time.
The hedge fund insisted that Northern Rock had “paid in kind” for the state’s assistance by transferring its assets to the government at book value. It was also submitted that, had there been a “fire sale” of the bank, at least something would have been left over for shareholders.
However, Lords Justice Mummery and Beatson ruled that independent valuer, Andrew Caldwell, had been entitled to value Northern Rock shares at nil on the date of nationalisation.
The judges said that, on the assumption that all the government’s financial assistance had been repaid prior to nationalisation, the bank would have ceased to be a going concern and its shares would have been worthless.
In a dissenting judgment, Lord Justice Lewison said he would have allowed Harbinger’s appeal and sent the share valuation issue back to Mr Caldwell for reconsideration.
However, he was out-voted by the other two judges and Harbinger’s appeal was dismissed.
Robin Ashby, the leader of the Northern Rock Small Shareholders’ Group which formed in the following months to represent the company’s “widow and orphan” investors, said he supported those who continued to fight for justice for shareholders.
Mr Ashby, of Gosforth, Newcastle, said: “We have always maintained that the zero value they put on the shares was flawed. The fact that one of the judges would have allowed the appeal show’s there an arguable case here and it is not as one-side as the Government would like to make out.
“The small shareholders like us don’t have deep pockets and so we cannot afford these kind of appeals, but I hope that those who do have the money keep on plugging away and keep the case in the public domain.
“Some people were affected very badly and had a big hole blown in their retirement plans. We intend to keep on highlighting the moral case.”