Aviva and General Accident preference shares

[ChloesDad]

Well, is that it then ?

It's been very quiet on this board today. Is it because the fight is effectively over after the major shareholders came out with that statement this morning ? Here it is again, for those not yet in the know..

http://www.londonstockexchange.com/exch ... 59100.html

I find it astonishing that a CFO of one of Britain's major financial institutions can come up with a ruse he so arrogantly believes he can get away with. He clearly hasn't even sounded out any of the major shareholders prior to his opening gambit. Obviously, the man is a fool, but a nasty spiteful one at that. Surely the noose is tightening around his neck over this fiasco ? And his Antipodean buddy too ?

[Itsallaguess]

It's been very quiet on this board today. Is it because the fight is effectively over after the major shareholders came out with that statement this morning ? Here it is again, for those not yet in the know..

http://www.londonstockexchange.com/exch ... 59100.html

I find it astonishing that a CFO of one of Britain's major financial institutions can come up with a ruse he so arrogantly believes he can get away with.

Isn't the explanation in the above link -

Preference share do not hold voting rights, but offers a fixed rate of interest, making them more like bongs than shares.

http://www.londonstockexchange.com/exch ... 59100.html



Itsallaguess

[ChloesDad]

I must say, you couldn't make it up. I was on the floor laughing when I saw that Blackrock was on that list of major investors. Talk about the left hand not knowing what the right is doing...

[ChloesDad]

Isn't the explanation in the above link -

Preference share do not hold voting rights, but offers a fixed rate of interest, making them more like bongs than shares.

http://www.londonstockexchange.com/exch ... 59100.html



Itsallaguess

[/quote]


Hahahahaha !! Missed that one, Itsall

[paulmiller]

Well, is that it then ?

It's been very quiet on this board today. Is it because the fight is effectively over after the major shareholders came out with that statement this morning ? Here it is again, for those not yet in the know..

http://www.londonstockexchange.com/exch ... 59100.html

I find it astonishing that a CFO of one of Britain's major financial institutions can come up with a ruse he so arrogantly believes he can get away with. He clearly hasn't even sounded out any of the major shareholders prior to his opening gambit. Obviously, the man is a fool, but a nasty spiteful one at that. Surely the noose is tightening around his neck over this fiasco ? And his Antipodean buddy too ?

Yes it may well all be over now.

Perhaps they are just working out now which of the Aviva directors should resign. I would not blame any of the non-execs over this fiasco but the CEO and the CFO should certainly resign.

The FCA should also place a very heavy fine on the Investment Bank that came up with this very nasty idea to fleece British pensioners.

[GoSeigen]

Well, is that it then ?

It's been very quiet on this board today. Is it because the fight is effectively over after the major shareholders came out with that statement this morning ? Here it is again, for those not yet in the know..

http://www.londonstockexchange.com/exch ... 59100.html

I find it astonishing that a CFO of one of Britain's major financial institutions can come up with a ruse he so arrogantly believes he can get away with. He clearly hasn't even sounded out any of the major shareholders prior to his opening gambit. Obviously, the man is a fool, but a nasty spiteful one at that. Surely the noose is tightening around his neck over this fiasco ? And his Antipodean buddy too ?

Yes it may well all be over now.

Perhaps they are just working out now which of the Aviva directors should resign. I would not blame any of the non-execs over this fiasco but the CEO and the CFO should certainly resign.

The FCA should also place a very heavy fine on the Investment Bank that came up with this very nasty idea to fleece British pensioners.

You people live in a strange parallel universe!

Fiasco?
Resign?
Heavy fine?
Arrogant?
A fool?
Nasty, spiteful?

You say all this without the slightest sense of irony or introspection?

I doubt anything bad is going to happen to either the exec or his company.

GS

[Wordchild]

I think this whole project is dead in the water now. in the past I have served on a couple of UK PLC boards, both as exec and non exec and, in my experience, what has happened here is completely unprecedented. It would be hard to conjure up a more powerful group of institutions than the group who went to see the Aviva Chairman the other day. To have just one of those institutions raise a red flag about something your company was proposing would cause an issue within the board; to have all of them, effectively acting in concert, in this way, will have created really serious concerns (and maybe a touch of panic) in the minds of the non execs . The technical merits of Aviva's case I doubt have relevance any more, its now about personal and corporate reputations.
I suspect that the institutions will have demanded that Aviva publically row back on its threat and I believe this is what they will now do. Maybe after a little pause (for face) I think its likely that Aviva will put out a statement along the lines of; " after giving full consideration to all the issues raised blah blah and the boards desire to be fair to all stakeholders blah blah then blah blah tender offer at a fair price blah blah"
As I said above I have no holding in any of the Aviva prefs. In fact I don't hold any prefs these days, but I do hold Aviva ordinary. And with that position in mind I do hope the Aviva board manage to extricate themselves from this situation with the minimum of further reputational damage.

[Wordchild]

Also, depending on how it goes from here, I think its likely that the FD will be the focus of the non execs irritation (rather than the CEO). I think its not impossible that he gets eased out after this, so that trust can be restored.

[johnhemming]

The technical merits of Aviva's case I doubt have relevance any more, its now about personal and corporate reputations.

I think that is the key to the situation. I think their argument is technically weak, but the overall plan to redeem irredeemable stock (issued to retail investors on a public market) compulsorily at a discount is something that is quite unique in my experience.

[Wordchild]

This company is in very robust financial health, as they trumpeted with their recent results. They have surplus capital by any measure. They are forecast to make operating profits of in excess of 3 billion for 2018. Yet they are seeking to impose heavy losses on a group of stakeholders in order to make savings of a few tens of millions. ummm! it does not look like a smart move, at least in terms of their corporate reputation.

[ChloesDad]

Last comment -from today's Times.

Read this and learn something, GS. Maybe even humility.. ?

http://www.thetimes.co.uk/article/the-i ... -l2cbvnhgp

[GoSeigen]

This company is in very robust financial health, as they trumpeted with their recent results. They have surplus capital by any measure. They are forecast to make operating profits of in excess of 3 billion for 2018. Yet they are seeking to impose heavy losses on a group of stakeholders in order to make savings of a few tens of millions. ummm! it does not look like a smart move, at least in terms of their corporate reputation.

This is simply not true.

1. Aviva have announced no concrete plan yet.
2. They have given no indication that they will offer a penny less than shareholders' entitlement under their terms.
3. Any losses faced by individual investors will have two origins: the price the investor paid to buy the share and the price the investor was entitled to receive under the contract. Neither of these figures is under the control of the company.
4. The company could make an offer to investors. Frankly even if it were 102p they should welcome such a gesture. It's more than they are entited to.
5. The fact that shareholders thought they had made huge paper gains is down to two factors -- the business being successful and economic conditions in general. Only the first is under the direct control of the company and they can hardly be criticised for it!
6. Preference shareholders are entitled to a fixed capital repayment under their terms. Any hypothetical premium on this can only be interpreted as removing from residual, ordinary shareholders part of the residual profits of the business to which they alone are entitled.
7. The market price of a share is a fantasy: the value that marginal traders ascribe to holding or not holding a security at a particular moment in time. As we have seen time and again, it often has a tenuous connection with the actual underlying economic value of the asset. That is not Aviva's fault.
8. Your argument would carry more weight if the securities were debt, paying mandatory interest and not discretionary dividends: they are not, and investors have been compensated for their risk with a higher coupon.
9. If investors wanted certainty over redemption, they could have bought a redeemable security of which there are many, but they did not and have been compensated for their risk with a higher coupon.
10. Any loss a holder believes he is making is a gain for ordinary shares: let him by the ords; and if he argues that any gains will be diluted among the larger ordinary shareholding, that is very true -- but he then must also recognise that he has taken a leveraged bet on the hope that he can continue in perpetuity to extract the company's profit from the pockets of its residual shareholders -- and leveraged gains carry the risk of leveraged losses.

[Comments primarily focussed on GACA/B]

GS

[scrumpyjack]

For most companies, moral behaviour is the best long term policy. For Insurance companies acting in "Utmost Good Faith" is critical to their business and not just to the insurance policies they issue.

So it is not enough that sharp lawyers have found a way round the generally accepted understanding of the small print on which these preference shares are based, that goes against the entire market's understanding of the basis of these shares. It can only be done by one class of shareholder voting to do down another class of shareholder.

That is why all these city institutions are outraged and why the Times article is correct in its opinion of this.

It does raise a question mark about the judgement of Mark Wilson and of the Finance director.

I do not hold any Aviva pref shares but I do hold ordinary shares. I don't think it is in ordinary shareholders interests to damage Aviva's reputation in this way. (Though I have to say I tend to view all these financial companies as sharks anyway!)

[taylor20]

Do we think Aviva should have done what the city normally does, i.e. Have a quiet chat with institutional investors to gauge opinion prior to public announcement? Allowing the institutions to exit at preferential price as retail investors scramble to pick up the now strangely discounted preference shares?

Totally appreciate that Aviva should not pay more than par for the shares, that would be seem 'odd', I lend you £100 and you pay me £8 a year in interest, then you decide to repay the debt and I turn round and demand £170?!

Personally, barring any further announcements, I'm going to value all these instruments as if they are going to be redeemed at par in 2026 and adjust my yield calculations accordingly.

As for reputational damage, Lloyds and the Co-op brands are as healthy as ever as far as I can see. So I'm sure whatever Aviva decides won't affect their reputation in any significant way.

Deeply depressing.

[GoSeigen]

Last comment -from today's Times.

Read this and learn something, GS. Maybe even humility.. ?

http://www.thetimes.co.uk/article/the-i ... -l2cbvnhgp

Chloe's dad, you would set a better example for young Chloe and her generation if you presented a reasonable, coherent argument to those with whom you disagree rather than this stream of virulent abuse. Do you think you could manage that?


GS

[Alaric]

This is simply not true.

I'm not going to go through them one by one, but almost all your points can be disputed.

But let me ask just one question.

Do you believe that when the Preference Shares were first issued back in the 1990s that it was the intention of either the borrower (Norwich Union/General Accident/Commercial Union) that the subscribers to capital were granting them a right to repay the debt at a time of their choosing? Please do not dispute the wording "repay the debt". I'm going back to the time when the parties have agreed what the transaction should be and the exact terms and conditions to implement this have yet to be written.

[Alaric]

I lend you £100 and you pay me £8 a year in interest, then you decide to repay the debt and I turn round and demand £170?!

But that's not how it works in undated instruments. The lender insists on a payment of £ 8 for ever and his permission to stop the deal. The lender needs that promise because of a liability to a third party to pay £ 8 for ever.

Interest rates have changed and the borrower would like to get out of having to pay £ 8 for ever. The borrower is only going to agree if offered enough to replace the £ 8 annual income.

[GoSeigen]

For most companies, moral behaviour is the best long term policy. For Insurance companies acting in "Utmost Good Faith" is critical to their business and not just to the insurance policies they issue.

So it is not enough that sharp lawyers have found a way round the generally accepted understanding of the small print on which these preference shares are based, that goes against the entire market's understanding of the basis of these shares. It can only be done by one class of shareholder voting to do down another class of shareholder.

That is why all these city institutions are outraged and why the Times article is correct in its opinion of this.

It does raise a question mark about the judgement of Mark Wilson and of the Finance director.

I do not hold any Aviva pref shares but I do hold ordinary shares. I don't think it is in ordinary shareholders interests to damage Aviva's reputation in this way. (Though I have to say I tend to view all these financial companies as sharks anyway!)

There are two kinds of accusation:
-of repeatedly acting in a dishonest, unfair or unkind way. I agree that the moral compass of a company should guide them away from these things.
-of behaviour that is unprecedented, arrogant, bungling, shocking, outside of all historical norms, foolish, outrageous etc, etc. These are the trademark accusations of the abuser, a person -- victim of their own misfortune for sure -- who cannot cope with their own indaquacy or failure and lashes out to make someone else look worse and thereby assuage their own angst. The target of such abuse typically has no need to be ashamed of what they are accused: it says more about the abuser than the abused.

Personally, I would focus on the facts and not the faux shock and outrage.


GS

[GoSeigen]

This is simply not true.

I'm not going to go through them one by one, but almost all your points can be disputed.

But let me ask just one question.

Do you believe that when the Preference Shares were first issued back in the 1990s that it was the intention of either the borrower (Norwich Union/General Accident/Commercial Union) that the subscribers to capital were granting them a right to repay the debt at a time of their choosing? Please do not dispute the wording "repay the debt". I'm going back to the time when the parties have agreed what the transaction should be and the exact terms and conditions to implement this have yet to be written.

Yes.

GS

[PeterGray]

GS

2. They have given no indication that they will offer a penny less than shareholders' entitlement under their terms.

I agree with that statement. However, while I respect your views on this, and I can see substance in them, it does not seem crystal clear to me that the the legal arguments on exactly what are those terms are as cut and dried as you think. There is certainly room for a challenge. And there is certainly room for reputational damage - which could greatly outweigh the limited gains from par repayment of the prefs.

While I also certainly don't think it's "all over" or that "heads will roll" (yet anyway), the opposition that appears to be arising not simply from PI quarters is significant. If it's as clear as Aviva seem to think, and you seem to do, then what does that say about the likes of Blackrock who are invested in these and have held way over par. Either they are grossly irresponsible with their clients money, (possible I'd admit) or the contract interpretation Aviva are using is not as obvious to everyone else as you are suggesting it should be.

I agree that GACA/B appear to be in a particularly weak position, as you imply, given the Aviva control of the ords. But whatever the correct interpretation of the prospectus the AV.A/Bs do need a vote, even if it's a joint one, and that always looked tight, and it's looking tighter by the day at present.

Peter