Saturday, November 24, 2007

Nothern Rock chief shareholder wants to block sale

The major shareholders in Northern Rock have gone on a media offensive, threatening to block the sale of the company if they don't get value for their investments. You can't blame them for trying, but it does smack of a wilful refusal to face reality. A representative of the largest shareholder, RAB Capital, speaking on BBC's Today programme tried to talk up the state of the Rock saying that it was solvent 'because the government said so'. This is nonsense, without the support of over £23bn of taxpayers money Northern Rock would now be in bankrupt, so pretending that this is basically a healthy company is ludicrous. What the shareholders are trying to do is to pressure the government by threatening to drive Northern Rock into administration if they do not get their way. The trouble is that the government probably cannot give them what they want, which is some sort of value for their shares, because EU competition rules do not allow it. Even if that was not the case, support could only come from taxpayers funds, which basically means that the shareholders want the government to give them money, which most people would think unlikely. Northern Rock is bankrupt and as a bankrupt company it is simply not worth the value of the investments that have been made in it. The only question is what real value remains. It could be very little indeed.

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