Monday, February 18, 2008

From 'Something-For-Nothing' And Back Again

18th February, 2008

Dear Northern Rock Shareholders,

Please stop your whinging. You are, of course, the equity investors (or in capital market parlance: The Bag Holders). For those of you not versed in what precisely this means, it entails ownership rights, which in turn, yields a vote upon various orders of business that, from time-to-time, are put to shareholders, a fractional ownership share of the net assets of the Company, and a same fractional claim upon all the net profits of the firm - both those retained by the Company, as well as the portion paid in the form of dividends that management deems you worthy to receive, pari-passu to all other common equity holders.

In good times, these may indeed be plentiful and above and beyond both management and shareholder expectation. During bad times for the company, however, of which you are the owner-in-fact, this may entail a mind-numbing, ego-bruising, complete utter-and-total loss. In the case of Northern Rock PLC, lest you need reminding, times have been very very very bad indeed. This last description may, in fact, be an understatement.

You as the owner of the enterprise may argue, like the owner of a pretty red automobile parked in one's driveway whose motor is potentially broken beyond repair, that it is a fine car by all appearances sake. And that (if it were running) it would be worth a tidy sum. But, be that as it may, it is impossible to know whether or not the cost of towing and fixing and possibly replacing the engine will be greater than the ultimate value of the car, something not improbably given the visible cracks in the engine block and the oozing of slimy black stuff now pooled upon your drive. Of course, you must have the money the money (e.g. 50 billion or so) and the resolve to find out, or else it is, despite outward appearances, for all intents, worthless as an automobile except perhaps as scrap, a West-Virginian yard-ornament (when raised up upon breeze-block), or as a low-rent spare bedroom for less-than-favored house-guests and mothers-in-law alike.

You've been given ample time to try and sort yourselves out, but all I have seen is a few carpet-baggers buy shares in the secondary market to little avail, but nowhere has the sort of GBP 5billion rights issue been successfully floated that might provide the sort of cushion that would placate newly (required) creditors to balance your books, and avoid receivership and ignominy. Having failed in this this regard, creditors could, of course, try their (and yours) luck in a dismembering receivership. This would be messy, indeed, and given the nature of current credit market conditions, would likely net you ZIPP-O, ZER-O, NADA, and rien du tout.

Fortunately for the hemorrhaging credit markets, Northern Rock employees, and other holders of like mortgage assets, the largest of the creditors (Hiya Ali D.!), to whom the keys of the enterprise have been turned over, does not wish to liquidate at present. This is probably good for you (in a medicinal sort of way) for IF the loan portfolio and servicing enterprise do turn out to be sound (and profitable) in future, and Mr Darling recoups more than the financing (plus spread!) that he's lent the enterprise that you [formerly] owned, on behalf of The People, you may actually get a small "thank you" checque to deposit in addition to the rather pleasing [now rather worthless] Share Certificates that, once framed, will hang nicely on above mantle next to your Enron and WorldCom certs.

So please, show some decorum, and refrain from whining and filing frivolous lawsuits for there are far more interesting things with which to fill broadsheets and tabloids alike, such as "What was Princess Di's favoured method of contraception?".

Most Sincerely Yours,


P.S. Don't forget that most of you original small shareholders got "something for nothing" in any event, and I don't recall anyone kicking up a fuss about it.

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