Since I’m not a Northern rock shareholder, I wasn’t at yesterday’s EGM in Newcastle’s Metro Radio Arena – so I’m grateful to Graeme Wearden on the Guardian’s NewsBlog for a blow-by-blow account of the proceedings. A lot of ‘north-east (hurt?) pride’ was on display, he writes, as well as some natty shirting worn by the two hedge fund managers who have made themselves central to the story, Philip Richards of RAB Capital and Jon Wood of SRM. In the chair, trying to get the audience on his side with a joke about having the second toughest job in Newcastle (the worst, of course, being manager of the troubled football club), was Bryan Sanderson, the ex BP executive who was parachuted in after Dr Matt Ridley did the decent thing and resigned.
The essence of today’s drama was a bid by Richards and Wood to take out of the hands of Sanderson’s board the power to issue new shares or sell off significant assets – in effect, the power to negotiate a private sale of the whole Northern Rock business. Sanderson does not want his hands tied in that way, and analysts have generally taken the view that if Richards and Wood prevail then likely as not, the looming threat of nationalisation of the Rock will become reality even quicker than it might otherwise have done. Sanderson, plus his chief executive Andy Kuipers (who took over from Adam Applegarth), and three other directors appointed after the crash, were all up for re-election at the meeting.
Well, if I had been a shareholder, which way would I have voted? I might have been tempted not to vote to re-elect Sanderson, a burly, uncharismatic friend of New Labour (ex chairman of one of its super-quangos, ‘the Learning and Skills Council’) who has a big corporate CV but is probably best known in the north east as a none-too-successful chairman of Sunderland football club. But why rock the boat at this delicate juncture? Sanderson must by now know everything there is to know about the contents of the Rock’s darkest cupboards, including all the skeletons; and he still has alongside him the Rock’s senior non-exec director Sir Ian Gibson, the hugely respected former managing director of the Nissan factory at Sunderland. Gibson is an authentic hero of modern British management – and even if building Micras and flogging mortgages are very different skills, I’d happily back his judgement.
As for Philip Richards, Spectator readers may recall an interview with him by Judi Bevan in our issue of 16 December 2006: an avowed Christian and active philanthropist, he said he found no conflict between religious observance and the aggressive market reputation which earned him the nickname ‘the pig’ among fellow share traders. ‘An awful lot of the men of God in the Bible were actually pretty prosperous,’ he told Judi Bevan – and he lobbed in a reference to his belief in ‘righteousness’ at the EGM today.
His partner in the Northern Rock shareholder rebellion, Jon Wood, is known for a business style that does not include much in the way of Christian forgiveness, however. Having made his name as a star trader at UBS, the Swiss owned investment bank, he launched a £100 million lawsuit in 2005 over losses he had incurred in a business called Gadget Shop – but he did not impress the judge, Mr Justice Warren, who found him ‘an unreliable witness’ and ‘a hard and calculating man’ motivated by ‘animus’.
The pair bought their combined almost-18 per cent stake in Northern Rock as the share price tumbled after it had turned to the Bank of England for emergency funding. In stock market parlance, they caught the falling knife. They took the view that the Rock was a fundamentally sound business whose share price would recover when credit markets calmed down. So far they have been proved dramatically wrong, certainly on the second part of that view, and with hindsight probably on the first.
Their interest – essentially a huge, short-term bet – is by no means perfectly aligned with the interests of the thousands of smaller shareholders who received Rock shares on demutualization and have hung on to them. Their rhetoric – Richards spoke at the EGM about the need for the Rock to ‘grow aggressively’ again, as though that wasn’t what got it into trouble in the first place – seems increasingly detached from the cruel reality of Rock’s impending fate. If any sort of viable private-sector offer for the Rock lands on the mat at this late stage, the danger is that Richards and Wood will drive it away by being unrealistically aggressive about price. I am not persuaded that their judgement is better than the board’s and I can see no advantage to the mass of Rock shareholders in giving these City slickers a veto over Northern Rock’s fate. Hence I would not have voted in favour of their resolutions yesterday
And happily it turns out the shareholders largely agreed with me. By a two-thirds majority, they threw out four of the five Richards-Wood resolutions. The only one that passed will prevent the board allotting more than £5m of shares in the company without shareholder approval. But after a dramatic day, the ball is still at Bryan Sanderson’s feet.