The Rock released a grim statement to the stock exchange this morning, saying that ‘the range of values for the existing equity implied by the proposals is materially below’ Friday’s closing price, and warning that ‘the value to shareholders from any of the proposals… remains highly uncertain’. Not surprisingly, investors headed for the hills as soon as the market opened, sending the share price down more than 20% to just over £1. Five months ago, it was trading at £12.50.
So it's more bad news for shareholders - although it can't have come as a total shock. After all, was it really likely that anyone would pay over the odds for an institution in this state, just to save the blushes of the Treasury and the Bank of England?
Still, it’s been an eventful few days for the Rock, following Friday’s informal deadline for bids. After receiving several expressions of interest (including firm proposals from Arnold and Virgin), chief executive Adam Applegarth finally fell on his sword, along with half the board.
And speculation has been rife about whether the government would extend its existing loans to the successful bidder – even though under EU rules, it’s not supposed to guarantee anything after February. Today’s statement insisted that interested parties ‘should not assume’ that the facility would be available beyond then.
The chances of a happy ending to this sorry saga appear to be receding by the minute – particularly if you’re a shareholder. Almost every possible scenario – with the possible exception of Arnold’s proposal – will result in their equity becoming virtually worthless.
The government is also in grave danger of ending up with serious egg on its face. It’s already facing calls from the Lib Dems to nationalise the bank – it’s the ‘least worst option’, according to acting leader Vince Cable, and avoids the taxpayer subsidising Branson, Arnold et al. But the government’s stuck between a Rock and a hard place – supporting the winning bidder would be politically difficult (and possibly illegal), but it’s poured so much money in to the bank that nobody can afford to buy it without this support.
Alistair Darling must be wishing he’d stayed at the DTI. And Rock shareholders will probably be thinking the same thing…