NTHN.ROCK ORD 25P : L&G hints at legal action over Rock
05 mars 2008•13:01
Legal & General issued a veiled threat last night to take the government to court over the nationalisation of Northern Rock when the insurer demanded that ministers reveal how much it was prepared to pay for the bank.
The insurer, one of Northern Rock's biggest investors, said the government should give shareholders details about the arbitration process and how it would determine the price investors will receive.
Its comments were seen as particularly pointed because L&G rarely makes statements on individual investments and they come in the week that other major investors are expected to announce legal action against the government. Mark Burgess, head of equities at Legal & General Investment Management, said investors had not been consulted about the way shares will be valued.
Like other shareholders, Burgess is understood to be frustrated that the arbitration process has yet to get under way. He is also concerned that judgments on the value of the lender must take into account that it cannot operate without Bank of England support, which amounts to £23bn worth of loans.
Burgess said: "In light of the government's recent decision to nationalise Northern Rock, we note the level of central bank funding in Europe, where the central banks continue to act as lender of last resort to the banking system. We await with keen interest details of how the process of arbitration will work, and the quantum of compensation for Northern Rocks shareholders."
L&G holds more than 5% of the lender's shares, which at the time of its nationalisation were worth 90p, valuing the company at £19m. Most of the shares are held on behalf of pension funds and other investors, which L&G maintains would be the main losers from a cut-price buyout.
Investors are keen to push the price up to nearer £4 a share, which they believe represents the value of the lender's assets. It is understood L&G fears the government is planning to pay only a nominal price, possibly nearer 10p a share.
The Treasury said that though it was keen to resolve the issue, the appointment of a referee must wait until the matter was debated by MPs. A spokesman said a debate could go ahead in the next few weeks, though there may be a delay for the Easter recess. "We expect to be able to appoint an arbiter quickly after parliament has debated the matter," he said.
The biggest investor in Northern Rock, SRM Global, is preparing to launch legal action against the government and regulators this week over their role in the collapse of the lender.
It is understood L&G is unlikely to join the action, though it is expected to give support, along with other major investors, including the rival investment managers Barclays Global Investors and Hermes.
SRM, which owns 12% of Northern Rock, is finalising tactics with its lawyers, White & Case. RAB Capital, the second-biggest investor in Northern Rock with about 8%, has so far refused to say whether it would also launch legal action.
SRM's head, Jon Wood, who has pursued several bruising legal battles, has said he was expecting to fire the opening shot before the weekend. "We haven't decided whether to name individuals, though we certainly plan to call them as witnesses." He accused the tripartite authorities - the Treasury, Bank of England and the Financial Services Authority - of "commercial vandalism" over their role in the bank's collapse.
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