This Is Guernsey

By Tom Edwards

THE man who invested more than £2m. of Guernsey’s pension fund in Northern Rock yesterday explained why he had done so. Schroder’s head of UK equities Richard Buxton said there was no indication at the time the bank was going to crash and shares would plummet.

The asset management company was placed in charge of a portion of the States’ superannuation fund and bought more than 250,000 shares on its behalf.

Because the decimation of Northern Rock happened so suddenly and without warning, Schroder’s were unable to save the £2.25m. it had invested.

‘We bought the shares in Northern Rock because they had always been a good investment in the past,’ said Mr Buxton.

‘They had already fallen in previous months from £12.50 to £10 because of increasing UK interest rates, which had caused a squeeze on their profitability.

‘Before when this had happened they had eventually performed well time and time again and so we decided it would be a good opportunity to buy them.’

Northern Rock set up a standby loan facility with the Bank of England because it did not know how long it would have to worry about bad lending in the American sub-prime market.

Bank of England governor Mervyn King made this public knowledge in the hope of reassuring the public, but the result was widespread panic and mass withdrawals from Northern Rock.

‘Because what happened was genuinely a totally unprecedented situation, we had absolutely no way of foreseeing what was going to happen,’ said Mr Buxton.

Schroder’s believe that there is more value in Northern Rock than the share price indicated, he added.

‘The proof is that there is significant interest in the company and we have spoken to one of them who is part of an extremely experienced management team.

‘We can’t yet say what the outcome will be, but we are holding on to the shares because we feel there is scope for them to rise in value again if the right solution is reached.’

Mr Buxton said that a decision about which proposal to take over the bank would not be made until the new year, when Schroder’s might even buy some more Northern Rock shares.

‘If the right deal is struck the shares could increase in value significantly and it may be that we could invest new cash into the restructured bank because of the potential profit.

‘However, because Northern Rock will have to be smaller in size and rely less on mortgages and more on raising its deposits, it would be too optimistic at this stage to say we could get back to the level that we bought the shares for.’