It is commonplace for a cornered executive, distressed at his or her falling share price, to blame dark market forces. Among market professionals, trading in the knowledge that it takes two views to set a price, paranoia over supposed stock manipulation is quite rare.
But then we are talking about Northern Rock here – and the market professional in question is Philip Richards, the RAB Capital hedge fund manager who bought a sizeable stake in the former bank in mid-September. He’s been all a-jitter ever since.
Writing in the Observer this weekend, the RAB man declares:
There are several major issues at stake in the Northern Rock situation. If the government gets it wrong we will all suffer the long-term negative consequences. All of us, that is, except a few wealthy individuals behind the funds which have actively shorted the Rock down to these pitiful levels, or those behind the vulture funds who would like to buy it for nothing.
The first three issues are intertwined and concern the integrity of the British banking system, the role of the Bank of England and the regulators, and the lasting legacy of this government for economic competence, prudence and stability.
Together these will determine the long-term cost of capital in the UK economy and directly impact on our national prosperity.
Mr Richards also reckons that if the Bank of England is allowed to persist in its hands-off approach to the Crock then we might as well abolish the Bank itself:
It is crystal clear that if shareholders are to be wiped out in such an event, then other bank managements should exercise extreme caution and either stop lending or hugely raise the cost of capital. Probably some of both, which would result in huge economic damage in the UK.
It also follows that the Bank can be reduced to a skeleton staff if its only role is setting interest rates, while the Treasury would look after depositors. If this new laissez-faire central banking is the future, then the Treasury will have to do that again and again, as there will be other runs on other banks, each successively more panicky as fear tightens its grip.
And then it’s back to those dark market forces:
A seldom talked about issue is the general public’s perception of morality in business in general and financial markets in particular. In the long run this is extremely important. The perception that a coterie of funds have crushed an institution through a relentless campaign of short-selling is damaging to us all. The associated panic and swirling rumours leave unpleasant memories and suspicions.
Mr Richards said much the same thing in a letter to the FT at the end of last month:
Finally, a sad ending for Northern Rock and its shareholders would hugely enrich those with large short positions in the stock. It is a new danger for our banking system that shorts can add to the panic in any situation where a bank seeks assistance. It must be a mistake, and morally questionable, to leave them richer and bolder for the next time.
We could speculate on whether RAB Capital is indeed a hedge fund – being free, according to numerous definitions, to adopt any number of investment styles, such as going short. Or we could just remind Mr Richards of a very old investment rule: If you are worried about a stock (like Northern Rock), sell it and stop worrying.