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 Bradford & Bingley Plc was
nationalised in September 2008. All the ordinary shares in the company were
confiscated by the Government, although a Compensation Order was created to
allegedly give shareholders fair compensation for their shares. That Order
appointed an Independent Valuer who has produced a compensation figure of
"nil" in his Assessment Notice published on the 5th July 2010. The subordinated bondholders (formerly called PIBS) have also
been affected because the nationalisation effectively determined a wind-up
of the company in due course, and the retail branch network was immediately
sold off to Santander. As the bonds are undated it is not clear what will
happen to them in due course although they continue to be traded and have
not been confiscated. Subsequently the company ceased paying interest on the
subordinated bonds, destroying most of their capital value.
This Group was formed soon after the
nationalisation of the company and was later incorporated in the form of a
"company limited by guarantee" (i.e. a non-profit making organisation
controlled by its members). It is currently chaired by David Blundell and
run by an executive committee of other former B&B shareholders and
bondholders. A photo of one of the public meetings held by this Group in
October 2009 is shown above.
The nationalisation of Bradford & Bingley was
done exceedingly rapidly, with no consultation or political debate (and
using the legislation created primarily to deal with Northern Rock). Many
shareholders feel particularly disgruntled because they subscribed for a
major rights issue only a few weeks before nationalisation. The money raised
by that rights issue was supposed to put the company on a sound financial
footing for many months, and create a balance sheet with capital ratios
stronger than most other banks.
Why Was the Company Nationalised?
The
announcement by the UK Treasury on the 29th September 2008 stated “The
FSA determined on Saturday morning that the firm no longer met its threshold
conditions for operating as a deposit taker under the Financial Services and
Markets Act 2000 and FSA rules”, but no more details were given. See the
full announcement which can be obtained from: http://www.hm-treasury.gov.uk/press_97_08.htm
. In reality this is misleading because if any such "determination" had been
made then the company's banking license would have been immediately
withdrawn, but that did not happen.
The
“Transfer Order” also states “It appears to the Treasury to be desirable
to make this Order for the following purpose: maintaining the stability of
the UK financial system in circumstances where the Treasury consider that
there would be a serious threat to its stability if the Order were not made.”
So
what exactly were the nature of these threats to the financial system and
specifically the breaches of compliance with deposit taking regulations? Was
the company insolvent or about to run out of cash? Shareholders will
certainly not have expected either to apply bearing in mind the large amount
of cash raised by the rights issue. Although the share price had collapsed
in the last few days (it closed at 20p on the Friday before nationalisation
when it had been as high as £3 in the past year), which clearly indicated
some lack of confidence that the company could continue, share price
volatility does not by itself affect the operations of a company.
Despite repeated requests for explanations on why it was nationalised, we
have never received a satisfactory answer. In addition it is worth pointing
out that the Government supported other banks in difficulties such as HBOS and
RBS with secret loans and subsequently bailed them out by encouraging the
former to merge to Lloyds and recapitalising RBS. Why was Bradford & Bingley
chosen to be destroyed when we believe it was a going concern? So the key
questions that shareholders have is:
1.
The exact reason for the nationalisation of the company and the necessity to
confiscate the property of the ordinary shareholders (as the owners of the
business).
2.
Whether the rights issues should have been permitted to proceed and whether
shareholders were wrongly induced to subscribe to it, when it seems that
this fund raising was insufficient to stabilize the company so that only a
few weeks later the Government found it necessary to intervene.
3.
Whether the comments concerning the strength of the company, only a few days
before nationalisation took place, from the directors and from the investors
relations department were misleading.
The Valuation of the
Ordinary Shares
The
Compensation Scheme Order for Bradford & Bingley shareholders as published
by the Government is present at:
www.opsi.gov.uk/si/si2008/draft/ukdsi_9780111471180_en_1 . Unlike that
for Northern Rock, no artificial assumption of the company being in
administration was placed on the valuation
process and terms of reference, but that does not mean that the valuation is
easy or that the Government will not argue that the company was worthless
(see below also for information that subsequently came to light).
One of our Executive Committee members produced the following note in 2009
which gives some idea as to the approach we believe should have been taken to
valuing the company, and our views on the relevant factors that should have
been
taken into account: Valuation
The
valuer appointed by the Government is Peter Clokey of PWC and he reported his
findings in July 2010. The value suggested was zero, i.e. you are likely to
get no compensation for the ordinary shares. The valuer has set up a web site where
you can obtain further information on the process followed and the basis of
the valuation - see
www.bandbvaluer.org.uk . Go to
the News section of this web site for our latest
comments on the valuation.
A
submission made by Charles Fussell (a solicitor who is acting on behalf of
this Group) to Mr Clokey in February 2010 is present in this document:
Submission. After the
Assessment Notice was issued by Mr Clokey, the Independent Valuer, our
Chairman made the following submission:
Valuation_Response
Other Issues and
Representations
Note that this Group has
done a lot of work on other aspects of this matter, including numerous
representations to Government ministers and to other politicians. A number
of press releases have also been issued to try and ensure that the wider
public is informed about the poor treatment of the shareholders and
bondholders.
As regards the rights
issue that shareholders may have subscribed for, please note that
independent solicitors Leon Kaye are pursuing that matter and shareholders
may wish to contact them directly for more information.
Subordinated Bonds (PIBS)
Please go to this page for more information on the status of the perpetual
subordinated bonds (formerly called PIBS): Subordinated_Bonds
Note that if you have a
general interest in stock market investment and the rights of shareholders
then you might like to consider membership of ShareSoc (the UK Individual
Shareholders Society - see
www.sharesoc.org for more information). |
