Shareholders in Northern Rock have criticised the Government for encouraging them to keep or buy shares in the stricken bank before nationalising it on terms that will leave them with little or nothing.

Thomas de la Mare, representing small investors the High Court in London yesterday, argued that the Government's harsh terms for nationalisation would have 'a devastating effect' on people whose Northern Rock shares were part of their retirement savings.

Dennis Grainger, the lead small shareholder claimant, held on to more than 7,000 shares he had built up in the bank's staff-share scheme, despite the announcement of emergency Bank of England support in September 2007. He was 'persuaded' to do so by statements from the authorities that Northern Rock was solvent, well capitalised with a good-quality loan book and that Northern Rock was being supported through short-term funding problems, de la Mare said.

The Independent