Europe: 'Northern Rock investors will not be compensated'

Investors are stuck between a Northern Rock and a hard place today, after the European Court of Human Rights rejected their case for compensation from the government.

by Michael Northcott
Last Updated: 19 Aug 2013

Shareholders who believe they are owed compensation for their shares when Northern Rock was nationalised, today received bad news. The main plaintiff bringing the case, Dennis Grainger, was told by the ECHR that his claim was ‘inadmissible’, because should the government agree to compensate shareholders, it would hurt the whole British economy. So they ain’t getting a penny back. And anyway the government has sold the bank to Richard Branson already…

Dennis Grainger is a former employee of the bank and had built up some shares by using the firm’s ‘save as you earn’ scheme. He and other investors are miffed because in 2010, accounting firm BDO ruled that their shares became worthless at the point when the UK government bought out the bank. Shareholders think that their stock was worth anywhere between £2 and £4 per share, prompting Grainger’s court action. Today, Grainger described the decision as ‘shocking stuff’. We can’t help but agree with him…

There’s an army of people who are irked though: around 150,000 shareholders are affected by the decision, and the UK Shareholders Association was quick to trot out a statement about the decision, quoting Grainger and describing it as an ‘unbelievable’ decision.  To make matters worse, the court also ruled that there will be no right of appeal, and the case will not be heard before any higher European court. Nowhere else to turn, folks!

The case was brought before the ECHR using the Property Rights Law under the European Convention on Human Rights, which protects a person’s right to own and retain property, but the court rejected the case out of hand. The rationale was that if shareholders had benefitted from the sale of the bank, then investors at other banks would suddenly be in favour of nationalisation to cash in on the new value that was ‘maintained only through the provision of State support.’ This, the judgment says, would damage the UK economy. 

It’s a fair point, but it hardly seems fair when the shares were actually trading a 90p apiece just before the nationalisation took place – so they weren’t worthless. The share value gave the bank a market capitalisation of £400m at that time. The government has even managed to recoup some cash itself: after the bank was split into ‘good’ and ‘bad’ parts, the healthy section was sold to Richard Branson’s Virgin Money for £538m late last year.

The UK Shareholders Association has vowed to carry on fighting, but it’s not clear where else they can take their battle. A politely worded letter to Branson to give them a cheeky dividend, maybe?

There’s an army of people who are irked though: around 150,000 shareholders are affected by the decision, and the UK Shareholders Association was quick to trot out a statement about the decision, quoting Grainger and describing it as an ‘unbelievable’ decision.  To make matters worse, the court also ruled that there will be no right of appeal, and the case will not be heard before any higher European court. Nowhere else to turn, folks!

The case was brought before the ECHR using the Property Rights Law under the European Convention on Human Rights, which protects a person’s right to own and retain property, but the court rejected the case out of hand. The rationale was that if shareholders had benefitted from the sale of the bank, then investors at other banks would suddenly be in favour of nationalisation to cash in on the new value that was ‘maintained only through the provision of State support.’ This, the judgment says, would damage the UK economy. 

It’s a fair point, but it hardly seems fair when the shares were actually trading a 90p apiece just before the nationalisation took place – so they weren’t worthless. The share value gave the bank a market capitalisation of £400m at that time. The government has even managed to recoup some cash itself: after the bank was split into ‘good’ and ‘bad’ parts, the healthy section was sold to Richard Branson’s Virgin Money for £538m late last year.

The UK Shareholders Association has vowed to carry on fighting, but it’s not clear where else they can take their battle. A politely worded letter to Branson to give them a cheeky dividend, maybe?

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