The LV= muddle shows mutuals need their own Takeover Panel
Bain Capital saga underlines flaws in law governing sector, such as lack of basic accountability to members
Last modified on Mon 13 Dec 2021 15.54 EST
The sale of Liverpool Victoria, or LV=, to private equity is dead, but the dissatisfaction around the proposed deal with Bain Capital will be harder to shift. That is not only because the same beleaguered board of LV intends to stay in place and lead the next chapter – negotiations with fellow mutual Royal London. It is also because the rules around transactions involving mutuals lack a basic level of accountability to the owners, the members.
As noted in this column a few weeks ago, life is simpler in the quoted-company arena. You get a clean process, overseen by the Takeover Panel, which operates on the excellent principle that the owners (shareholders in that case) must be treated fairly and have full opportunity to judge the merits of a proposed deal, which means giving them clear, accurate and timely information. Any statement that is even vaguely misleading or incomplete is pounced upon.
By contrast, LV’s board only truly started to explain its thinking on the Bain proposal when the prospect of defeat by members’ vote felt real. The whole saga got off on the wrong foot because the directors hadn’t formally sought a mandate for a sale. As an excellent report in April from the all-party parliamentary group for mutuals put it, the board “swung from praising its [LV’s] capital strength to justifying its demutualisation within the space of the year”.
That is possible, one might guess, because there’s no well-resourced body equivalent to the Takeover Panel looking out for the interests of members. Regulators appear agnostic on ownership structures and the “independent experts” employed to give an opinion on methodology are appointed by the same leadership whose handiwork they’re judging.
Meanwhile, mutuals seem starved of the political care and attention that the rest of the financial services scene enjoys. When the chancellor frets about the lack of technology floats in London, the system goes into overdrive with an all-singing review into loosening the listing rules. With friendly and mutual societies, the perennial problem (and a factor at LV) is relative lack of access to new capital. But proposed legislation in 2015, supported by regulators, that would have allowed the issuance of a hybrid form of deferred shares stalled after a dispute with HM Revenue & Customs and has never been revisited.
The lack of urgency is perhaps because, prior to LV, nobody had attempted a demutualisation for years. If the Bain proposal, although unsuccessful, signals a change in the weather, the regulations need to catch up. Gareth Thomas MP’s parliamentary group suggests a review of the law governing friendly societies and mutuals, covering the areas above and more. The chancellor should give it a fair hearing. The LV muddle was bad enough; a repeat would be worse.
Horizon for a real recovery at Capita keeps getting longer
The big boast from Jon Lewis, chief executive of outsourcer Capita, was that 2021 would see the first growth in revenues for six years. With 11 months on the clock, the promise is close to being fulfilled – but only just. Many would call an advance of 0.6% a case of going sideways.
The share price, on the other hand, tumbled by 19%. That’s a big move, given that Lewis – four years after inheriting a mess at Capita – maintains his “corporate transformation” strategy is making progress. He’s correct on measures such as debt-reduction and disposals. Capita, primarily divided between its public-sector division and the oddly-named Experience unit (think call centres and data analytics), is a simpler business these days.
But top-line growth still matters, and it’s hard to believe Lewis would have made such a fanfare about the six-year comparison if he thought the gap would be so tight. Public sector revenues are fine, but there’s not much he can do about companies’ tendency to bring services in-house during Covid. And a corporate travel agency is obviously getting whacked. The horizon for a real recovery keeps getting longer.
Criminal prosecutions of financial institutions should be less rare
NatWest’s £264m fine after admitting breaching anti-money laundering regulations is a big number. But the scale of the bank’s failure was spectacular: this was a case involving a small Bradford jeweller making deposits of £365m over five years, mostly in cash. So, well done, the Financial Conduct Authority. This was its first criminal prosecution of a financial institution under 2007’s anti-money-laundering legislation, and it succeeded.
But, tell us, please, why the civil route has been preferred in other cases. Yes, there has to be a threshold of seriousness to justify the time and expense of a criminal prosecution, but the FCA has never tried to define it except in loose terms. It should. Even more than a large fine, a corporate criminal conviction gets noticed.
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