Northern 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 yesterday 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.

Ron Sandler was named last month as the government's choice to lead Northern Rock on being nationalised.

"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 per cent. That was worth £76 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 eight per cent. Its holding in Northern Rock represents about two per cent 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 at last year's peak.

Northern Rock is the highest profile victim of the global credit crunch, after being forced to borrow £25 billion 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.

UK still open to offers

Britain will remain open to offers for embattled Northern Rock even after the country's fifth largest mortgage lender is nationalised, Finance Minister Alistair Darling told BBC television yesterday.

"At any time. . . if people have got proposals we will listen to them, but they have to pass a simple test - what is the best value for the British taxpayer?" Mr Darling said.

"At the moment, because of the state of the financial markets, it is not an ideal time to try and deal with a bank in the situation Northern Rock finds itself in, but of course I very much hope that over the coming period people will look at it.

This bank has a good mortgage book."