Legal & General yesterday threw its weight behind a legal campaign to win compensation for shareholders of the nationalised bank Northern Rock.

The insurer said it was joining as “an interested party” the judicial review against the Government issued by the hedge fund groups SRM and RAB and the Northern Rock Shareholders' Action Group.

As an interested party, it has the right to see the paperwork in the court action and to give evidence, although it is not formally a complainant and does not pay the lawyers' fees.

The backing of L&G, one of the biggest institutional investors in Britain, is likely to add authority to the claimants' case. L&G is an index-tracking investor whose clients have lost £250million in Rock in the past year.

When the Government nationalised the bank in March it said it would appoint independent valuers to decide the level of compensation for shareholders but crucially said the valuation should be based on the assumption that Rock was not a going concern. The claimants are challenging this instruction, which if followed is likely to lead to compensation of nothing or, at best, pennies per share.

A spokesman said yesterday: “L&G considers that the valuation should be independent and transparent without the prescriptive assumptions imposed by the Treasury. We therefore broadly support the substance of the applications brought by the claimants.”

The Treasury has yet to appoint the valuer.

Unlike the hedge funds, which aggressively bought Rock shares after the bank got into trouble last autumn, L&G had no choice but to hold the shares as a passive tracking investor. When the bank was nationalised, L&G held about 18million shares, or 5per cent of the company.

Rock collapsed in September after a run by depositors. Attempts to find a rescuer foundered and the Government took control in March.

Times Recommends

• Gazprom brands Ukraine 'a barbarian' in gas row
• Services sector raises fears over UK jobless
• Retailers surge as profits survive sales plunge