Northern Rock has scrapped plans to pay out its £59m interim dividend, following increasing pressure from both the Treasury and the FSA, says Kate O’Raghallaigh

The bank has been under intense scrutiny from MPs and regulators in recent days regarding its intention to reward shareholders, while it is currently staying afloat on taxpayer’s money.

The troubled bank’s announcement comes just two days after it defended the decision to pay its shareholders next month, even though it was not legally obliged to do so.

In a statement issued to the London Stock Exchange (LSE) last night, the bank said: “It would not be appropriate to make any interim dividend payment until it can make a full announcement regarding the outcome of discussions with other parties and the development of the business model”.

The decision has drawn mixed responses, with major shareholders expressing anger at the last minute withdrawal of the promised dividend.

Northern Rock is now in talks with investors, with a takeover bid among the possibilities being explored.

According to the statement issued to the LSE, the bank has received “a number of approaches regarding a variety of potential transactions, including the possibility of an offer being made to the company”.

Analysts have said that while chances of a takeover bid are middling, it is more likely that the bank will be put into administration, resulting in the company’s assets being sold off, and jobs being terminated.

COMMENT by Kate O’Raghallaigh

The most interesting thing about the latest decision made by the wreck that is Northern Rock, to me at least, is the reaction it has provoked amongst shareholders. Little relief has been publicly expressed by anyone, least of all by British taxpayers, who will now not have to fund a financial reward which isn’t even legally required to be paid.

Talks of shareholders filing a class action lawsuit against the bank are nothing short of hilarious – a reader’s comment in today’s Daily Telegraph sums it up perfectly: “How typical of the times we live in when shareholders who suddenly find things aren’t going their way decide to resort to legal means to claw back their investment”.

He’s not wrong there; such reactions do nothing to dispel the view that we live in an unremitting ‘complaint culture’, in which the only way to rectify something, is to wait until it goes wrong, then moan about it.

While the bank’s intention to go ahead with the payout was, in part, understandable – it is important for Northern Rock to convince the public of their reliability, even in times of crisis, it would have been unfair for the taxpayer to overcompensate for such ‘generosity’ – generosity which was, in effect, nothing more than a desperate attempt at holding onto their shareholders.