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January 9, 2008

SRM Urge Chancellor Caution

by Stewart Douglas

Story link: SRM Urge Chancellor Caution

A hedge fund that holds a major stake in troubled lender Northern Rock has today cautioned the government not to take the bank out of private control, unless it intends to offer a fair price to existing shareholders in a move that could be taken to display the first sign of a potential legal battle emerging.

In a letter to the chancellor Alistair Darling, hedge fund SRM warned that it was looking for a fair price for its shares in the company should the government look to nationalise in an effort to ensure repayment of monies lent by the Bank of England and the taxpayer to Northern Rock. 
Delivered prior to the Christmas period, the letter urged the government to think carefully about its potential to breach the European Convention on Human Rights which under the Human Rights Act has been ratified into UK domestic law and could lead to very public and embarrassing trial in European courts.

The Monaco based fund said that any compulsary share sale may breach human rights should it not reflect a fair value, which was defined in the letter as being in the region of 400p per share.  Analysts have also drawn on a statement within the letter which appears to suggest the Treasury may already be commited not to nationalise the bank, despite denials to this effect from within government.

Nevertheless Northern Rock has been the subject of much speculation in recent weeks, not least as to its immediate future with more than its fair share of takeover bidders lining up to take a look at the major consumer mortgage retailer.

The bank became a high profile victim of the credit crunch, the first and most notable of its kind in the UK, after becoming too heavily exposed to sub-prime securities around about the time of the collapse of that sector in the US.  It remains to be seen what its future may hold, and what the Treasury will propose as the next move forward.

 

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