The Association of British Insurers has raised concerns about Northern Rock’s plan to convert £400m of preference shares as part of its controversial move to strengthen the bank’s battered capital base.
Northern Rock, which was nationalised in February, announced this week that it would swap £3bn of its Bank of England loan for equity and would convert £400m of its preference shares into ordinary shares.
This would bolster the bank’s capital ratios, allowing it to absorb future losses and rising mortgage arrears.
Yesterday, the ABI said the government needed to respect the rights of preference shareholders. These include being given a higher priority if a company is liquidated than ordinary shareholders, although a lower priority than debt holders.