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Hedge Fund to Pursue N. Rock Payout 'to Bitter End'

The UK government's argument that it had no choice but to nationalize Northern Rock is "complete nonsense," the head of the troubled lender's largest shareholder told CNBC Europe Tuesday.

John Wood, founder of hedge fund SRM Global, said on "Squawk Box Europe" that his company -- which owns 11 percent of Northern Rock -- and other shareholders will take legal action to recover compensation.

"They're trying to -- to put it bluntly -- shove down peoples' throats how the compensation is going to be worked out. That in our opinion is not a legal way of judging compensation,” Wood said.

"There are courts in the UK and in Europe which we will be going to and we will pursue this to the bitter end in every court we can," Wood said.

The government has said that it would determine compensation based on Northern Rock's valuation had it not received funding from the government. Several analysts said Monday that the decision will likely leave shareholders with little or no payout.

If there is an independent valuation of Northern Rock, Wood said he thinks the company should have a break-up value of at least 4.24 pounds per share ($8.30) and should be trading at 1-1/4 times that, like most other mortgage businesses.

His valuation estimate is based on a report confirmed by Northern Rock that it is a solvent bank and will make profits this year.

Wood also attacked the bill that would temporarily nationalize Northern Rock that is going before parliament.

"Even the way the government is putting the bill through, in itself, is typical of how the government has handled this,” Wood said. "They are trying to masquerade it as a general bill, but in reality, it's a hybrid bill, which is only for Northern Rock."