SHAREHOLDERS in beleaguered mortgage lender Northern Rock have been dealt a further blow as the Government is expected to value their shares on the assumption that the firm had gone bust.
The Government is consulting its lawyer, Slaughter & May, about the process for establishing what compensation to pay Rock's shareholders. Once it has a legal framework in place, it will appoint an arbitrator to come up with a figure.
But in a statement to the Stock Exchange, the Government confirmed that the firm's independent valuer "must assume that the company is unable to continue as a going concern and is in administration."
The move is likely to cause a further headache for Chancellor Alistair Darling as he grapples with a banking sector already disgruntled over Northern Rock's apparent competitive advantage and shareholders mobilising for legal action over compensation.
RAB and SRM Global, the two hedge funds which together held more than 20% of Northern Rock's shares, have already started legal action.
Last night shareholders attacked the Government's valuation as a "nonsense", arguing that to value a company on "some sort of liquidation basis" makes "absolutely no sense".
Roger Lawson, of the UK Shareholders' Association, said: "If somebody said to you that this company would be valued on the basis that it is not a going concern, which is the terms of reference laid down by the Government, then the value is zero.
"In our view that is not a fair and reasonable way of valuing the company, and if the Government think they are going to get away without a legal challenge they can forget it. Northern Rock is going to go the same route as Railtrack, which means several years of interesting disclosures in court, ultimate embarrassment and probably the destruction of Mr Darling's career, as happened to Stephen Byers."
This week Angela Knight, head of the British Bankers' Association, will meet Treasury minister Yvette Cooper with plans to stop savings flooding into Government-backed Northern Rock deposit accounts. Their concerns were raised after former chancellor Kenneth Clarke said savers would be "mad" to withdraw money from what is effectively the safest bank in the world.
Northern Rock shares were trading at 90p before they were suspended on February 18. Hedge-fund investors claim they are worth around £4.25.
ON THE ROCKSComment: Terry MurdenProfile: Super RonInterview: John GoodfellowComment: Teresa Hunter