N.Rock investor fury at prospect of minimal payout

Big and small investors in Northern Rock Plc reacted with anger to the prospect their shares could be worthless after Sunday's decision by Britain's government to nationalise the ailing British bank.

Shares in Britain's fifth biggest mortgage lender were suspended on Monday after the government took the bank into public hands in preference to two private sector rescue offers. Finance Minister Alistair Darling said an independent auditor would determine how much shareholders should get, but the bank would be valued as if it had not received any government support, indicating a minimal payout if anything.

"Legal action (from shareholders) looks almost inevitable," said James Hutson, analyst at brokerage Keefe, Bruyette & Woods. SRM and RAB Capital, two hedge funds, are the biggest shareholders with a combined stake of almost 20 percent. That was worth 76 million pounds ($149 million) at Friday's closing share price of 90 pence, and many of their shares were bought at more than double that level. SRM had threatened before the decision to sue the government if it opted for nationalisation and didn't compensate investors the book value of 400p per share.

Jon Wood, head of SRM, told the Financial Times: "This is a very sad day for the stock market, banking industry and the reputation of the UK as a financial centre." RAB declined to comment, but its shares fell 8 percent. Its holding in Northern Rock represents about 2 percent of funds under management. Northern Rock has 180,000 shareholders and retail investors, who own about a quarter of the shares, also threatened legal action, saying their property was being confiscated.

"We will not accept the transfer of this company to a third party after some temporary nationalisation from which that third party will subsequently make substantial profits," said Roger Lawson from the UK Shareholders Association. Thousands of retail investors have held shares since the company floated in 1997. Over 885,000 members of the former building society each received a windfall of 500 shares -- worth over 5,000 pounds at last year's peak.

Northern Rock is the highest profile victim of the global credit crunch, after being forced to borrow 25 billion pounds from the Bank of England since its funding model collapsed in mid-September, sparking the first run on deposits of a major British bank for over 140 years. The government will put forward legislation on Monday to take the bank into public hands -- the first major nationalisation in Britain since the 1970s. It plans to return the bank to the private sector as soon as possible.