On last night’s Prime Time, when asked about nationalisation, Peter Bacon warned that the government would have to buy the privately-held shares and said “they can’t expropriate shareholders’ value.” On the face of it, there isn’t too much to discuss here. I have advocated that the government should purchase the shares at their closing listed stock market value. Indeed, I don’t know any advocate of nationalisation who has suggested “expropriating” valuable shares from those that hold them.
The reason I’m writing about this, however, is that a couple of other people have also mentioned to me lately that they think this legal concern about expropriation is, in fact, the “real reason” why the government is reluctant to nationalise. “Real reasons” according to this line of thinking, are reasons so important that you don’t talk about them to the public.
The obvious response to this is to point out that the government have already nationalised Anglo and appointed an assessor to provide fair compensation for the shareholders, with the legislation nationalising Anglo providing very little room for shareholders to challenge the assessor’s ruling. The precedent here is Northern Rock, where the appointment of an assessor appears to be heading towards the shareholders getting zero.
My preferred approach here would be as follows:
- The government stops denying the scale of the problem and signals strongly that it fully expects NAMA will only purchase the bad assets of the banks at a very steep discount. I would prefer that the hints in the NAMA FAQ document that asset transfer may be compulsory be withdrawn. In other words, the government should make it clear that it is willing to buy the loans at a fair market value and the banks can take it or leave it, without any legally-dubious mandatory purchases that could then be challenged later.
- With expectations of a NAMA-funded bailout dashed, the share prices of the banks will then tumble. At that point, the government can pay the shareholders the value of these shares and appoint an assessor to decide if any higher level of payment is warranted.
I’m not a legal expert but, given the Anglo and NR precedents, I find it hard to see how this approach would lead to legal problems. Still, I’d be interested to hear the legal opinions of those who fully understand these things.