Northern Rock has hired an 11,000-seat arena for a special meeting of its shareholders next week. The queues for tickets are unlikely to be as long as those that built up outside the group’s branches last year, when the credit squeeze and a subsequent run on the bank catapulted “the Rock”, and the UK’s government and financial supervisors into a crisis.
Even so, the meeting could yet defy the rule that the only thing “extraordinary” about such “extraordinary general meetings” is their dullness. It will be the first time the rights of Northern Rock’s shareholders have been debated publicly. Equity investors risk being wiped out if the government decides to nationalise the bank out of its plight. Two hedge funds, which together hold more than 17 per cent of the shares, have proposed much tighter safeguards, to prevent the board implementing “hastily ill-thought-out actions” without shareholders’ consent. Northern Rock’s board says that having to seek investor approval for smaller transactions and share issues could hamper its room for manoeuvre just when it may need to move speedily to salvage anything at all.
This is a high-risk game of bluff. The funds — RAB Capital and SRM — bought their stakes after the crisis broke and their rhetoric conceals a deep self-interest. Their vocal presence has helped persuade the board (and the government) to consider alternative rescue plans that would be gentler to shareholders than some of the original proposals. But the government has already made clear that depositors and taxpayers (who are on the hook because of the giant Bank of England loan helping to shore up the Rock) should come first. Many “stakeholders” are likely to take the floor at next week’s meeting, but the most important — the UK Treasury and the central bank — will not be among them.
In an ideal world, each of these stakeholders would compromise. But the Rock’s situation is far from ideal. In fact it would be logical, if selfish, for the 180,000 private investors on the Rock’s register to back the RAB/SRM initiative. There are risks. The hedge funds may have miscalculated the willingness of the government to recognise shareholders’ claims. They may have incorrectly assessed the underlying value of the bank’s assets. But this is in large part a political crisis. The best way for shareholders to play politics is to rally en masse to the hedge funds’ flag.