Northern Rock shareholders lose compensation case

LONDON Fri Feb 13, 2009 7:57am EST

A sign of a Northern Rock branch is seen in London this November 26, 2007 file photo. REUTERS/Luke MacGregor (BRITAIN)

A sign of a Northern Rock branch is seen in London this November 26, 2007 file photo.

Credit: Reuters/Luke MacGregor (BRITAIN)

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LONDON (Reuters) - Former shareholders in state-owned bank Northern Rock failed in a legal challenge on Friday to obtain damages for the loss of their holdings in the lender when it was nationalised last year.

The investors, led by hedge funds RAB Capital and SRM Global, argued that the government's compensation scheme valued their shares at virtually nothing, breaching their human rights.

But the High Court in London disagreed, saying "ultimately, they entrusted their investment to the hands of the management of the company", the Press Association said.

Roger Lawson, of the UK Shareholders' Association, which represents a group of 150,000 smaller investors, said after the case he was "disappointed, but it's not totally unexpected".

The case is likely to go to appeal, and possibly the European Court, he told Sky News.

Investors had argued that the government's compensation scheme, introduced under statute, was based on false criteria and would deliver the state a profit when the bank was eventually sold off.

They had sought a declaration that the compensation provisions were incompatible with the human rights principle that the taking of property by the state must be balanced by compensation reasonably related to the value of that property.

Under the scheme, they are likely to receive little or no compensation, but their lawyers had pointed out that Northern Rock shares were trading at 90 pence the day before the bank passed into public ownership in February last year.

They estimated that unsuccessful private sector bids, rejected in favour of nationalisation, would have placed an even higher value on the stock.

"Based on this judgment they will not receive compensation because our argument in court was that it was a no compensation order, it wasn't a compensation order, and the valuer will come up with a figure of a very small amount or zero. So we did need to win this," Lawson said.

Government lawyers had contended the shares should be valued on the basis of what they would have been worth without the 27 billion pounds in loans and 29 billion pound guarantee fund provided by the Treasury and Bank of England.

Northern Rock was forced to seek emergency support from the Bank of England in Sept 2007 after the credit crunch paralysed the wholesale money markets, a key source of the bank's funding.

(Reporting by Avril Ormsby and Myles Neligan; Editing by Sharon Lindores)

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