One sympathises, of course, with the former shareholders in Northern Rock who are still campaigning for compensation a decade after the bank’s nationalisation. They are not faceless City institutions. Many are small shareholders who had invested substantial sums, presumably in the belief the Rock was a solid north-east institution run by a competent board, and lost the lot.
The problem with the compensation idea, however, is that it doesn’t stand up. Yes, it is probably true that the Rock was not insolvent, just suffering an extreme liquidity crisis. After all, the Treasury is set to make a clear profit from the run-off of the mortgage book. But those profits are not evidence of unfair confiscation. Taxpayers assumed a risk the Rock was unable to bear because it had been running a risky and reckless funding model that couldn’t withstand the crisis. For a bank, lack of liquidity can be a life-threatening event.
Regulators at the Financial Services Authority were asleep, but that doesn’t alter the compensation argument. If the Rock had fallen into administration rather than being nationalised after a fruitless search for a buyer, shareholders would almost certainly have benn wiped out anyway. The independent expert decided zero compensation was due and his judgment was upheld on appeal.
The campaigners’ other point is that the owners of Royal Bank of Scotland were treated less harshly. Again, that is factually correct, but so what? Taxpayers took 89% control of RBS, rather than 100%, because the Treasury wanted to maintain a stock market listing and keep the bank subject to outside pressures. With hindsight, that decision was probably a mistake, but it doesn’t imply the Rock had to be treated the same way.
Sadly, the chance of the campaigners securing compensation through moral suasion is extremely low. Indeed, it is about as likely as the former Rock chairman Matt Ridley, now Viscount Ridley, treating readers of his Times column to his 10th-anniversary thoughts on what went so spectacularly wrong in the boardroom. We’re still waiting for that important piece.