What I wanted to know, when Norwich Union announced its plans for a stock market flotation last year, was whether, as a policyholder, I stood to lose my house if its shares went down the pan. Wiseacres shook their heads kindly, if a little condescendingly, and talked of safeguards, liquidity regulations and the separation of the interests of shareholders and policyholders.
All of which I believe. But I bet I’m not alone in wondering whether the current rush to abandon mutual status by Britain’s venerable life insurers and building societies is necessarily in the best interests of both their members and their new shareholders. There is, without doubt, something of a gold rush on at the moment – witness the pans that are being dipped in Scottish Amicable’s stream – but those who rush to market do so, as often as not, with the heart of a lemming rather than the head of a prospector.
It is as well to ask why these institutions should wish to give up mutual status for a slice of stock market action. I don’t mean the stock answers you have already heard – that today’s financial institutions need access to a wider range of capital markets; that they need to be able to compete with banks as peers; and that their members deserve to participate, as shareholders, in the success that mutuals have enjoyed over past decades.
No, I am referring to the reasonable suspicion that these prospective flotations are driven as much by corporate testosterone as by any of the solemn declarations listed above. In this context, one observation resonates above all: that Peter Birch, chief executive of Abbey National, has had his salary increased by 300 per cent since the former building society’s flotation in 1989.
I have no time for fat-cat polemic. I don’t begrudge Birch a single cufflink (particularly since he has brought Abbey National through the tough early Nineties recession). But as a motive for flotation, increasing executive pay is a poor one. And I, along with some City analysts, have no doubt that some of these flotations are driven by career aspirations. As a motive, albeit unspoken, it is unlikely to wrest the passbook from my parsimonious grip.
But the appeal to innate greed, on a wider scale than simply the boardrooms of the aspirant plcs, is nevertheless a powerful one. And it is one that makes the voting process a sham. The fact that mutuals can blandish even modest investors with four-figure sums makes this just about the only democratic vote in the world in which it is legal to bribe the electorate. It’s enough to make a South American general blush. Having received such blandishments, I can say there is an impertinent assumption about the whole process – I may as well accept the terms, because everybody else is going to anyway.
The entire sales fair has the atmosphere of a distasteful family TV game show, in which members of the proletariat perform humiliating little tricks for the promise of moderate wealth. More cruelly, one could adapt the old adage applied to prostitution: we have established what these institutions are, we are now merely discussing the price.
Take the circumstance of dear old Scottish Amicable. Abbey National, which has developed some fairly streetwise habits since its own conversion and aims to repeat its mugging of National & Provincial in 1995, early this week upped the ante in its bid for ScotAm by indicating that it could increase its offer beyond an average 400 per policyholder. This move is understood to represent an intent on Abbey National’s part to push the auction, for that is what is has become, between predators such as Prudential and NatWest well beyond 2bn.
ScotAm is rather pathetically sticking to its offer of about 70 to each shareholder for a spring conversion to plc status, followed by an undisclosed sum at flotation some time around the new millennium. Big deal. No punter ever parted with the goods for a vague promise of a good time in the future, when immediate satisfaction is at hand.
It is interesting to note how “ScotAm” has passed into the common parlance. The full “Scottish Amicable” has ceased to sound appropriate in the fast-buck milieu into which it has passed. “ScotAm” conveniently depersonalises it – it is interesting that no one yet speaks of AbNat.
The serious point here, as we face a year in which Halifax, Woolwich, Alliance & Leicester, Northern Rock, ScotAm and Norwich Union (Norion?) lose their mutual status, is whether enough thought has been given to what is being given up for the glittering prizes of the stock market. It is one (delightfully simple) thing to take deposits, offer loans and manage reserves in trust – quite another to have shareholders, as well as policyholders, to worry about.
These mutuals can probably rely on inertia to ensure that we don’t abandon quoted institutions for the remaining mutuals. But it would be good to see some research into how concern about satisfying shareholder performance (by, say, the big banks) can affect investment performance. Mutuals might come out of it rather well.