HedgeCo.Net (West Palm Beach) – Two prominent hedge funds are in talks to sue the UK government over the nationalization of Northern Rock.
SRM Capital and RAB Captial, who own over 20% of Northern Rock’s shares, fear that the ensuing nationalization will wipe out shareholders completely.
“There will be legal action,” said Roger Lawson of the U.K. Shareholders’ Association. “It is clear that the shareholders will get nothing. It will be valued as though the government loans were not available, which would mean the company is worth nothing.”
If investors can claim government negligence or malfeasance, they may have a shot at getting what they think is fair. According to them, that would be about 4 pounds per share, the book value of the stock. However, suing for malfeasance, which means that the government officials acted in a corrupt or unlawful manner, is very hard to prove in Britain, and precedents are not in favor of the public.
In the first bank nationalization since 1984, the Treasury is left with $222 billion worth of assets to distribute, and over 6,500 employees who own approximately 11% of the total shares.
Chancellor of the Exchequer, Alistair Darling, recently passed legislation that would allow the government to seize any bank in trouble, though he insists it is for the benefit of the taxpayers. Darling has been the target of criticism since taking office in June 2007, amidst a slump in the British economy and one of the worst housing markets in recent history.
British government officials assert that the restructuring of Northern Rock is only temporary.
“We want to get the bank back into private ownership after a temporary period of time,” Prime Minister Gordon Brown said at a press conference in London yesterday. “That will depend on how the markets recover.”
Julie Scuderi
Contributing Editor for HedgeCo.Net
Email: [email protected]
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