Northern Rock investors in dark on payout

By Steve Slater

LONDON (Reuters) - Shareholders in Northern Rock, the bank that was nationalised last month after a five-month crisis, remain in the dark as to when and how they might get any compensation as a legal spat looms.

Monaco-based hedge fund SRM, the bank's biggest shareholder, is expected to launch legal proceedings against the government soon, and smaller investors are positioning to claim a fair price for their shares as well.

David Greene, partner at law firm Edwin Coe, said he has pulled together about 7,000 small shareholders and they are considering action, but the process is unclear. "That's part of the problem, no-one really knows what the procedure is, what the basis is," he said.

A Treasury official said legislation needed to appoint an independent evaluator was expected to go through parliament next week, or possibly the following week.

The government took Northern Rock into public ownership on February 22. Compensation for about 180,000 shareholders will be set by an independent valuer named by the Treasury, who "must assume that the company is unable to continue as a going concern".

That is expected to mean little or nothing is paid for the shares.

Investors are expected to challenge whether the government's decision to nationalise Northern Rock was reasonable and the assumptions the government has set for the valuer of the shares.

"We say the purchaser (the government) shouldn't effectively tie the valuation to a low value or nil value. That's up to the valuer," said Greene.