SRM Chief Decries Northern Rock Move, Vows Fight

Feb 19 2008 | 12:22pm ET

The largest shareholder of Northern Rock is lashing out over the British government’s plan to nationalize the troubled bank.

Jon Wood, whose hedge fund SRM Global owns 11.5% of Northern Rock, decried a plan to value Northern Rock as though it had not received government funding. Under such a system, shareholders are expected to receive almost nothing.

“They’re trying to—to put it bluntly—shove down peoples’ throats how the compensation is going to be worked out,” Wood told CNBC Europe. “That, in our opinion, is not a legal way of judging compensation.”

Wood said that, at a minimum, investors should receive £4.24 per share; when trading on the London Stock Exchange was suspended, Northern Rock was trading at £0.90, and some estimates have investors receiving as little as £0.05 in the nationalization.

Northern Rock ran into trouble when the subprime mortgage market collapsed last summer, requiring a government bailout. Like many hedge funds, SRM poured millions into Northern Rock stock, anticipating a handsome payoff when the bank was sold.

Wood disputed the government’s claim that it had no choice but to nationalize the bank, calling that argument “complete nonsense” and pointing to a report that shows Northern Rock is solvent and will turn a profit this year.

“Even the way the government is putting this bill through, in itself, is typical of how the government has handled this,” Wood said of the temporary nationalization measure. “They are trying to masquerade it as a general bill, but in reality, it’s a hybrid bill, which is only for Northern Rock.”

Wood’s fund, which stands to lose tens of millions of pounds under the proposed valuation system, reportedly has advanced litigation plans.

“There are courts in the U.K. and in Europe which we will be going to and we will pursue this to the bitter end in every court we can,” Wood said.

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