Northern Rock cancels dividend, negotiates sale

By Philip Aldrick
The Telegraph, London
Tuesday, September 25, 2007

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/09/25/bcnroc...

Northern Rock has caved into pressure from politicians and taxpayer groups and axed its L59 million interim dividend payment.

The dividend, 14.2p a share, was due to be paid next month to shareholders on the register at the end of this week.

In an update to investors after the stock market closed in London, Northern Rock also revealed that it was in discussions with a number of parties about a possible sale of the lender.

Critics have attacked the board for promising to maintain the payout despite drawing on L2.9 billion of emergency funds from the Bank of England simply to keep the business running.

In addition, the Treasury has underwritten several billions of pounds of Northern Rock's debt -- putting taxpayers' money at risk.

Northern Rock is believed to have now bowed to pressure from the Financial Services Authority and the Treasury not to make the payment.

The bank is likely to dress up the decision as a dividend deferral by promising to pay shareholders once the funding crisis is over. However, bankers and economists say it will technically be bust without the Treasury guarantees and that shareholders were unlikely ever to see the dividend.

Andrew Clare, professor of asset management at Cass Business School, said: "Had the Government not stepped in, there would be no dividend and no company. I'm sure it wasn't the Government's intention for the dividend to be paid."

Corin Taylor at the Taxpayers' Alliance pressure group said he was worried about the payment, adding it set "a very bad precedent."

The Government action to protect Northern Rock's savers was one thing, he said, "but when taxpayers are underwriting shareholders, that's a whole other matter. It is not right for the Government and the taxpayers to be underwriting any dividend."

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