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Aviva stands firm on prefs threat as anger mounts

Aviva says 'irredeemable' status does not mean they can't be cancelled, as fund managers accuse insurer of treating investors unfairly.

Aviva stands firm on prefs threat as anger mounts

Aviva is standing firm on its threat to cancel its preference shares, despite a mounting backlash from fund managers and retail investors to the move and questions from the Financial Conduct Authority.

The insurer’s signal that it could cancel the shares, announced alongside full-year results last week, has sent their values tumbling and been met with anger from investors.

Aviva’s threat hangs over four preference shares, two under the Aviva name and another two issued by General Accident, the car insurer which merged with Aviva predecessor Norwich Union in 2000.

They feature high fixed dividends of between 7.875% and 8.875% on their issue price, which had led to them trading at big premiums.

But all four have suffered heavy falls on Aviva's announcement. The General Accident 8.875% preference share is down 30%, with the other three having fallen around 25%.

Angry investors have pointed to prospectus documents for the Aviva preference shares which state they ‘will not be redeemable, save with the approval of the holders’. Documents for the General Accident preference shares state simply that they are ‘irredeemable’.

Aviva insisted in its results last week that it ‘had the ability to cancel preference shares at par value through a reduction in capital, subject to shareholder vote and court approval’.

The insurer has now issued a further statement arguing that ‘the fact that the preference shares are described as “irredeemable” does not prevent them from being subject to Aviva or General Accident’s ability to re-pay them in accordance with their terms following a reduction of capital’.

Ordinary shareholders will seal fate

It claimed this was ‘a different mechanism under law to redemption’. Crucially, Aviva said this would be put to a vote, not just of preference shareholders, but all investors, including ordinary shareholders. At least 75% of votes would need to be in favour of the measure for it then to be taken to the courts for approval.

In the case of the General Accident preference shares, Aviva, as the only General Accident ordinary shareholder, would be able to wave through the plans.

‘Aviva is the sole holder of the ordinary shares in General Accident and would be entitled to exercise its votes on a resolution for the reduction of capital in these circumstances,’ it said. ‘Aviva has sufficient votes to approve any such resolution.’

For holders of the Aviva preference shares, the fear is that ordinary shareholders would back the plans, lured by the prospect of bigger payouts to which the insurer has explicitly linked its move.

In a vote, Aviva preference shares would carry four votes each versus one vote for each ordinary shares. But there are only 200 million preference shares in issue versus more than four billion ordinary shares.

The insurer said that a cancellation of the shares was ‘one of a number of options Aviva is considering for the deployment of £2 billion surplus capital in 2018’ and that ‘no decision has yet been taken’. It said ‘market purchases or tender offers’ were other options.

'Treating preference shareholders very poorly'

Craig Veysey (pictured), Citywire AA-rated manager of the £200 million Sanlam Strategic Bond fund, hit out at Aviva’s move.

‘Morally, we believe without much justification, it is treating preference shareholders very poorly indeed,’ he said, arguing investors ‘believed they were genuinely irredeemable, and were anticipating they could hold them forever’.

‘Those investors in a fair situation should be paid out according to what the market value was before the announcement.’

That echoes the views of retail investors commenting on the Citywire Money website, who have reacted angrily to Aviva’s move.

Veysey agreed with TwentyFour bond fund manager Gary Kirk’s argument that Aviva’s decision could come back to bite it in the form of higher borrowing costs.

‘Bond holders who potentially might be considering holding Aviva debt might quite reasonably require a higher level of credit spreads on such investments in the future,’ he said.

Veysey narrowly escaped being hit by Aviva’s move, having sold a 1.5% portfolio position in Aviva and General Accident preference shares in early February.

‘The reason was not because we could foresee this potential situation,’ he said, but that debt on financial companies was trading at expensive levels, just as government debt had become cheaper in the bond market sell-off that greeted the start of the year.

Chris Ainscough, manager of the £69.5 million Charles Stanley Monthly High Income fund, sold his 0.8% portfolio holding in Aviva preference shares shortly after the announcement.

‘We saw the announcement regarding their consideration of a cancellation at par and acted quickly to exit these positions in anticipation of the market’s reaction to this unprecedented action. The majority of the holding was sold before any move in the price which insulated us from this specific event,’ he said.

Ainscough was able to take advantage of a delayed market reaction to Aviva’s move, to which it devoted just five lines carried towards the end of its main results announcement. The sell-off only really began around midday on the Thursday, after fixed income campaigner Mark Taber had tweeted about the move.

The Shires Income (SHRS ) investment trust was the fund worst hit by Aviva’s move, with its net asset value down 4.1% in a single day after the announcement. Manager Ed Beal holds 5.1% of his portfolio in the General Accident 7.875% preference share.

Move reverberates across market

But it wasn’t just that investment weighing on the fund. The impact of Aviva’s move reverberated across the small preference share market, with around £1 billion wiped off in the immediate aftermath, as investors feared other issuers would also attempt cancellation.

Among Shires Income’s other holdings are a 6.1% position in Royal Sun Alliance preferred shares, now down 15% since the start of the year, a 5% holding in Santander preferred shares which are down 16% and 4% held in Standard Chartered preferred shares, down 10%.

One preference share to have recovered from the sell-off is that issued by Ecclesiastical Insurance, a 6.2% position in the Shires Income trust. Investors have taken heart at the Church of England insurer’s unambiguous statement that it had no plan to cancel its preference shares. That was delivered with a side-swipe at Aviva, highlighting the insurer’s stated aim of ‘building trust with our customers, investors and shareholders by running our business honestly and transparently’.

Veysey called on other institutional shareholders to follow Ecclesiastical’s lead and place public pressure on Aviva over the move.

Ainscough, who also has a small position in preference shares from other issuers, said he had spoken to Aviva to ‘raise our concerns regarding what would be a very detrimental course of action for remaining preference share investors and the broader asset class’.

‘We continue to hold Aviva bonds so welcome balance sheet rationalisation but care needs to be taken with regards to treating investors fairly,’ he said.

Funds hit

The £1 billion GAM Star Credit Opportunities fund is one of the largest investors, with a 2.1% portfolio position in the General Accident 8.875% preferred shares.

GAM Investments said in a statement: ‘We are very disappointed to hear that Aviva is considering cancelling its preference shares at par value. We will continue to engage with Aviva on this issue and seek the best possible outcome for our investors.’

Other funds to have been hit include the Aberdeen Smaller Companies Income (ASCI ) investment trust, with 2% of its portfolio held in Aviva preference shares and 1.9% in those from General Accident.

The £2.1 billion M&G Charifund meanwhile holds a 2.1% portfolio position in General Accident preference shares. The City Merchants High Yield (CMHY ) investment trust meanwhile details a 3.5% position split between Aviva preference shares and the insurer's unaffected perpetual shares, but does not give the proportion for each.

Some of the other fund groups affected have declined to comment, but Taber suggested that they were lobbying Aviva behind closed doors. ‘I know in private an awful lot more is going on,’ he said.

Pressure on Aviva is meanwhile not just coming from investors. City regulator the FCA has also been asking questions.

‘The FCA is aware of the issue and making active enquiries into the matter. We are engaging with the firm, its advisors and security holders,’ said an FCA spokeswoman.

‘We are seeking to understand the basis upon which the firm is taking this action and we are considering whether they have put sufficient information into the public domain.’

44 comments so far. Why not have your say?


Mar 16, 2018 at 16:51

I don't think any investors will be keen to trust future Aviva debt after this. And definitely not preference shares.

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Mar 16, 2018 at 16:59

Regarding CMHY, their last full portfolio disclosure dated December 31st shows an exposure of 1.12% to the GA 8.875% preference issue. There is also an exposure of 2.39% to the (currently) unthreatened Aviva 6.125% perpetuals.

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Mar 16, 2018 at 17:33

Aviva previously described the preference shares as perpetual on their web site but hastily changed this after the fact a few days ago.

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Dennis Russell

Mar 16, 2018 at 17:36

The key issue may be,

'Can Ordinary shareholders decide on the cancellation of Preference Shares, or can only Preference share holders vote such a decision?.'

Any good lawyers out there?

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Tim Kempster via mobile

Mar 16, 2018 at 17:55

Disgraceful behaviour from a company that should be leading the way in fairness and good corporate governance.

Instead we get short term greed and underhand actions. We all know what irrideemable means. Let's not bother to pretend we don't.

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Mar 16, 2018 at 18:03

This product should never have been titled and sold as "irredeemable" , if they can be infact redeemed.

We are drowning in a sea of red tape and regulation, yet something so basic appears to be a miss.

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Neal Morris via mobile

Mar 16, 2018 at 18:13

If you return the capital its redemption. It matters not how you claim to do it but what the result is. There is more than one way to skin a cat but what ever way you do it, its still a cat. It doesn't suddenly become a dog if done in a particular way!

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Mar 16, 2018 at 18:22

They aren't being "redeemed", they are being "cancelled". A fine distinction, but nevertheless a big difference in law. And if only a single class of shares is being cancelled then all shareholders can vote together on it, it's only if multiple share classes are being cancelled that the shareholders of those classes can have their own vote. Or at least, that's the legal position according to EU company law as I understand it. IANAL, etc. etc.

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Garth Nicholson

Mar 16, 2018 at 18:24

If Aviva won't back down on this sharp practice then it will go to the shareholder vote. I am an Aviva ordinary shareholder and would vote against this on principal. If this theft of the Preference shares is allowed to happen, regardless of any improbable small benefit to ordinary shareholders, the subsequent undermining of investor confidence is not worth any short term gain. All of us should make sure we vote against.

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Robert Russell via mobile

Mar 16, 2018 at 19:07

I would sell Aviva ordinary shares. No doubt they will cancel them at the nominal issue price -25p. If they continue this immoral behaviour they should remember that Lloyds only won 3-2 in the Supreme Court and no doubt that was as a result of political intervention. There will be no such support for Aviva.

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Rollo via mobile

Mar 16, 2018 at 20:22

Perfectly reasonable for an ordinary shareholder to vote against but Aviva are well within their rights.The shares might be irredeemable but ,like any share they are cancellable.Whats the issue?

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Thomas Bertram

Mar 16, 2018 at 20:29

Aviva's proposed action is tantamount to fraud. It goes directly against the wording of the terms applicable to the preference shares. Not redeemable without the approval of the holders means what it says.

Tom Bertram

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Mar 16, 2018 at 22:55

This is a nasty move by Aviva. Legally dubious and not necessary. Really did not expect this sort of behavoiur from my pension provider. Business spend years building trust, you no longer have mine.

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Mar 17, 2018 at 07:30

If they could find a way to stop paying out on annuities they would. There must be some that were on 8% rates that are still paying out, no commercial sense in that, it's only some old pensioner's sole source of income, find a legal loophole why don't you.

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chris selby

Mar 17, 2018 at 07:32

Aviva's last annual report shows they invested £305 million of CUSTOMERS money in 'non-redeemable preference shares'. So Aviva's reckless 'we can cancel rights of pref shareholders' bombshell will have hit its CUSTOMERS by about £100 million !

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Mar 17, 2018 at 09:23

Feels like another example of what Lloyds did ... seems you can not trust UK financial services not to employ sharp practices. Further reason for not investing in the UK me thinks.

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Roger Lawson

Mar 17, 2018 at 09:32

The key question to ask here is what is the FCA doing about it? They have a duty to protect the interests of investors and to ensure that there are fair and equitable markets. They should not be sitting on their hands over this (as they have done in the past on similar devious corporate moves by unprincipled directors).

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Mar 17, 2018 at 09:47

The smart money is on them sitting on their hands yet again. There might (at a push) be the odd harsh word and stern glare but no actual action.

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Cynical Investor

Mar 17, 2018 at 09:52

The Legitimacy of the proposed Cancellation is dubious and will be argued over in Court. What this action does illustrate is the unscrupulous ways some Company's will stoop too in order to improve the balance sheet.

As an Ordinary holder I am against this proposal in principle as, and Ordinary holders need to consider, what future action may Aviva propose which could undermine or diminish equity holdings.

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Paul Nash 2

Mar 17, 2018 at 12:05

What does one expect from an insurance company other than to do its very best to utilise small print in order to renege on its commitments whenever it possibly can?

I strongly suspect there will be no benefits to ordinary shareholders from this move either. Immediate financial gain will be pocketed in bonuses (let's face it, that is likely the prime motivation here), borrowing cost will rise and the fallout from bad publicity will negatively impact business. They will certainly not get any business from me.

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Shaun Mahoney via mobile

Mar 17, 2018 at 12:49

It seems that everybody has misread and misunderstood the important paragraph 4(iii) within the prospectus.

The paragraph was inserted by the originators to ensure that there was full protection for the new preference shareholders, in that before any future "Capital Repayments" to ordinary shareholders, the company would have to refund 100% the Preference shareholders for their recent capital injection.

In essence it was a "penalty" / "Protection" clause, to ensure Ordinary Shareholders did not runoff with the money recently inserted by the new Preference Shareholders.

The paragraph could be used on more than one occasion, if the company decided to have more than a single return of capital.

The Preference Shares would also continue in existence and receive their dividends after receiving such payments.

There is no mention of the word "cancellation" relating to the holding of preference shares.

In practice, it meant that before the company could make any "return of capital" to ordinary shareholders, it would have to redeem the Preference shares first, and with the 75% of preference shareholders approval.

This gives the Preference Shareholders a great deal of authority in any planned return of capital, as they could block any board plans.

With many disgruntled preference shareholders you may have a difficult job!

Prospectus 4. (iii)

On a return of capital (otherwise than a winding up or on a redemption or purchase by the Company of shares of any class), the holders of the New Preference Shares shall be entitled to receive an amount per New Preference Share equal to the nominal amount of a New Preference Share with all arrears and accruals (if any) of the dividend payable theron, whether or not such dividend has been earned or has become due and payable, to be calculated up to and including the day of the return of capital.

“On a return of capital” – this refers to a return of capital to Ordinary Shareholders (as only they and/or the board can approve a capital return)

This paragraph provides an important protection to the Preference Shareholders (and their money they had invested in the business)

This therefore has prevented the return of capital

Big Question, has GA or Aviva ever done a “return of capital”, thus a bonus for Preference holders is due? (AV.A = £100,000,000)

This statement on AVIVA’s PLC web-site is therefore incorrect (below)

Under Condition 4(iii) of the terms of each issue of preference shares, preference shareholders are entitled to receive an amount per preference share equal to the nominal (or “par”) value of their preference shares together with all accruals and arrears on the dividend (or “coupon”). All the preference shares have a par value of £1.00. In addition, the GA preference shareholders are entitled to the premium paid on the issue of their preference shares. The £110 million 7.875% GA Preference Shares were issued with a premium of 0.749 pence per preference share and the £140 million 8.875% GA Preference Shares were issued with a premium of 0.885 pence per preference share.

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Mark Yu

Mar 17, 2018 at 13:49

The issue here is fairness and unbalance of right of investors. Ask Aviva if the situiation is like rampant inflation and the preference shares were trading below par, will they allow the preference shares holders to demand the company to cancel the preference shares and pay the investors the par value? I think not.

If they want to cancel, they should pay the market value before the announcement.

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Dennis Russell

Mar 17, 2018 at 14:41

It should be remembered that, since the preference share was sold for £1.00, there has been a considerable loss of value because of inflation

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A S Markson via mobile

Mar 17, 2018 at 16:09

Various phrases come to mind e.g. 'tin ears', 'unacceptable face of capitalism', 'reputational risk', 'short-termism', 'greed', 'arrogance'. I understand the difference between cancellation and redemption, but I don't understand the legality of a market moving statement that is to the advantage of the party making the statement. More phrases that come to mind - 'market manipulation', 'insider trading' - or a favourite literary quote "methinks they do play with cogged dice". In a word if it feels dishonest, sounds dishonest, and looks dishonest, I think there is a high probability that it actually is dishonest. By the way I thought insurers took your money up front and offered in return the assurance that they would stand by their commitments; that their 'word is their bond'. Aviva should be ashamed.

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A S Markson via mobile

Mar 17, 2018 at 16:10

Various phrases come to mind e.g. 'tin ears', 'unacceptable face of capitalism', 'reputational risk', 'short-termism', 'greed', 'arrogance'. I understand the difference between cancellation and redemption, but I don't understand the legality of a market moving statement that is to the advantage of the party making the statement. More phrases that come to mind - 'market manipulation', 'insider trading' - or a favourite literary quote "methinks they do play with cogged dice". In a word if it feels dishonest, sounds dishonest, and looks dishonest, I think there is a high probability that it actually is dishonest. By the way I thought insurers took your money up front and offered in return the assurance that they would stand by their commitments; that their 'word is their bond'. Aviva should be ashamed.

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D. Parkinson

Mar 17, 2018 at 19:37

When reviewing your home or car insurance, do not use Aviva, they can longer be trusted.

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Robert Norman

Mar 17, 2018 at 20:58

I agree it is wrong to cancel these at par. If we accept Aviva can do this legally then the vote is important. What I don't understand is when these shares were issued there were a 593 million of ordinary shares. There are were 200 million of Av preference shares according to the prospectus. So in that situation 75% vote could not have been won by the company. Now there are 4 billion ordinary shares so the preference shareholders have been diluted. Can anyone explain how that has happened? It materially affects the vote...

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Nic Hawkins

Mar 17, 2018 at 23:09

If Aviva think that these preference shares can be cancelled then this would certainly amount to acting by low standards, shareholders of this class being as much a shareholder as any other class for whom the board have a duty to act. I cannot see that the shares can be cancelled other than after they have been bought back by the company at a market price assuming no prior market manipulation has taken place.

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Cynical Investor

Mar 17, 2018 at 23:46

Nic the very fact Aviva have made the scurrilous announcement has already had a dramatic effect on the pref share price...manipulation if you like.

Will be interesting to find out if the Company have been active in the market these past few days?

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Officious bystander via mobile

Mar 18, 2018 at 08:21

If Aviva are right then why didn't these fund managers understand the risk they were taking in buying such shares for a premium? The prospectus is there to be read and the underlying facts are available. If something looks too good to be true then it invariably is too good to be true.

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Mar 19, 2018 at 10:01

So Aviva knocked 30% off the pref market AFTER having bought £305 million of the stock? If their that clever even the FCA should beat them in court!

Yes I hold prefs, ordinary and my CAR INSURANCE! that's the first to go.

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Peter Clery

Mar 19, 2018 at 14:16

Write to the NEDs.I have. They can outvote the execs. and should do on this issue.

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chris selby

Mar 19, 2018 at 14:17

Aviva's credit spreads have widened 15-20bps since they dropped the 'we can go about cancelling the rights of our preference shareholders bombshell.' So that wipes out any net reduction in funding costs from cancelling the preference shares and ordinary shares are worse off !

Is not time for Board Casualties.

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chris selby

Mar 19, 2018 at 14:42

Anybody ancient like myself who can remember 70s music, will probably remember a record from Hot Chocolate called " Everyone's a winner " their are no winners at Aviva apart from lawyer fees.

Ordinary shareholders worse off due to the increase in credit spreads.

Pref holders having the potential to have their holdings redeemed at par for a huge capital loss

Clients Aviva's last annual report shows they invested £305 million of customers money in 'non-redeemable preference shares'. So Aviva's reckless 'we can cancel rights of pref shareholders' bombshell will have hit its customers by about £100 million !

Company's Reputational damage.

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Mar 19, 2018 at 15:43

Officious Bystander, These were not 'too good to be true'. When issued they offered a fair dividend which was slightly above average BECAUSE they had no exposure to capital gain or loss?! or so we thought.

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Mar 19, 2018 at 16:22

The NEDs? Don't make me laugh!

Q: What's the difference between a non-exec and a supermarket trolley?

A: Most supermarket trolleys have a mind of their own.

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Peter Clery

Mar 19, 2018 at 16:26

With Sir John Varley going into the dock, there is a build up of reputational concern amongst NEDs. I think we can play on this. They can out vote the execs. Pile on the pressure !

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andrew moffat

Mar 20, 2018 at 20:38

Email address for Investor Relations:

Email address for Mark Wilson, CEO

The task of the Senior Independent Director:

"be available to shareholders should they have any concerns that the normal channel of approaching the Chairman, Group Chief Executive Officer, or Chief Financial Officer has failed to resolve or where such contact would not be appropriate."

Glyn Barker is the Senior Independent Director. I cannot find his email address.

The Chairman is Sir Adrian Montague CBE

However, there is also a slate of Independent Non Executive Directors, which can be seen here:

It would be helpful if we could discover the email address of each of the above Directors.

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D. Parkinson

Mar 21, 2018 at 01:24

If you look at the report Sir Adrian Montague chaired into the review of barriers to institutional investment in private rented homes, you can understand his logic from this report.

Unfortunately he lacks empathy for people who do not have his business acumen. I suspect that due to his lack of empathy he will ignore the preference share holders.

I do not think Aviva shares should therefore be held in "ethical funds" as his actions are lacking empathy.

His actions suggest that no one should logically purchase preference shares again, as irredeemable is no longer irredeemable, Aviva could have redeemed them by purchasing in the open market & cancelling them.

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Peter Clery

Mar 21, 2018 at 07:50

The Board will decide. Mark Taber is doing an excellent job. But we should all help. WRITE registered delivery (not email) to the Chairman Sir Adrian Montague, CEO Mark Wilson, CFO Thomas Stoddard,Andy Briggs CEO UK Insurance, Maurice Tulloch CEO International Insurance, Glyn Barker Senior NED , Claudia Arney edd, Michael Mire ned, Patricia Cross ned; , Michael Hawker nedkeith Williams ned & Belen Romana Garcia ned. Also Senior execs. They are: Euan Munro CEO Investor Relations; Angela Darlington Chief Risk Officer; Kirstine Cooper General Counsel & Co. Secretary.I have done this.

These are the people who will finally decide Aviva's course of action in this sorry affair.,This should be to withdraw permanently the threat of cancellation, , to offer to buy the prefs . at the price ruling before the statement and to find some way of compensating those who sold on the statement. ,

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andrew moffat

Mar 21, 2018 at 09:34

Very helpful and informative article in The Times this morning on the incident, which I have repeated beneath.

In addition, there is a first class comment by Galois, in the Comments' section who refers to Aviva's 'Ratner moment'.

Meanwhile, the superlative Mark Taber asks why investors should be expected by Aviva to scrutinise the Companies Act to be aware that Aviva might hatch such a proposal. Indeed!

I rather think that CEO Mark Wilson's position is becoming untenable. It would be most pleasing to have his head for this - a salutary lesson for others too.


Galois 5 hours ago

Not quite a Ratner moment, but not far off it. For a company whose business model is based on trust, this could end up being a very expensive Pyrrhic victory.

The cost could be both reputational as well as financial.

Anyone still willing to deal with Aviva is under notice that Aviva is willing to seek out unconventional interpretations of their legal liabilities in order to reduce them.

And before they achieve their Pyrrhic victory, Aviva not only has to be absolutely sure that their novel interpretation of the intersection of company law, their articles and the specific terms of these instruments is water tight but also that there is no other legislation of any type which might have a bearing to the contrary.

Whatever the outcome, investors should logically charge Aviva a premium in the future for legal risk and customers should avoid them totally unless they are confident that their legal understanding of all relevant legal aspects is superior to Aviva’s.

As I said, almost a Ratner moment. Congratulations Sir Adrian and Mark Wilson, you have trashed your own and your company’s reputations.


City attacks Aviva bid to cancel preference shares

Investor group tells insurer to back down on ‘aggressive’ action

Katherine Griffiths, Harry Wilson

March 21 2018, 12:01am,

The Times

Aviva has been attacked on the grounds that holders of the shares did not know they could be cancelled

Some of the City’s largest investors have clashed with Aviva over its controversial plan to cancel £450 million of preference shares, many of which are owned by pensioners and charities.

A group made up of M&G Prudential, Invesco, GAM, Blackrock, Legal & General and Eden Tree met Sir Adrian Montague, Aviva’s chairman, yesterday to demand the insurer back down from its proposal to cancel three issues of preference shares which pay an average of 8.5 per cent annually.

Unlike ordinary shares, preference shares do not give their holders any voting rights and instead offer a fixed rate of interest, making them much closer to financial securities, such as bonds. The shares, some of which carry interest rates of close to 9 per cent, are popular with many savers as well as leading money managers. Cancelling preference shares is appealing for companies in an era of low interest rates and a benign economic environment, as they can replace expensive debt with a cheaper form of funding.

The City investor group owns 30 per cent of Aviva’s preference shares and 15 per cent of its ordinary stock. The unusual decision by the City establishment to turn on one of its own is an embarrassment for Sir Adrian and Mark Wilson, Aviva’s chief executive.

Nicky Morgan, chairwoman of the Treasury select committee, also heaped pressure on Aviva by asking the Financial Conduct Authority if the insurer’s plan complies with the UK Listing Rules. In a letter to Andrew Bailey, the FCA’s chief executive, she asked if the regulator was concerned that the preference shares were marketed to retail investors and “what options” the watchdog had if it considered that Aviva had misled its investors.

About £700 million was wiped off the value of sterling-denominated preference shares issued by several companies after Aviva shocked investors two weeks ago by raising the prospect of cancelling its issues in order to save £38 million in annual interest.

Aviva has been widely attacked on the grounds that holders of the shares did not know they could be cancelled. Mark Taber, an expert in retail fixed-income investments, has accused Aviva of “very aggressive action”. Aviva has said its rights were “clear under the Companies Act”. However, Mr Taber has said it would have been effectively impossible for investors to know that, as it would have involved scrutinising the Companies Act, the company’s own articles of association and the specific terms of the preference shares.

The FCA said last week that it was talking to Aviva and “considering whether they have put sufficient information into the public domain”. After the FCA’s statement, Aviva added more details to its website. It said Section 641 of the Companies Act “provides that a company may, through a reduction of capital, repay any paid-up share capital in excess of the company’s wants”.

Aviva added that while the preference shares were described as “irredeemable”, it could still cancel them. It has not yet made a final decision.


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Peter Clery

Mar 21, 2018 at 09:45

Surely Thomas Stoddard should go. I guess he hatched the plan.

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Garth Nicholson

Mar 21, 2018 at 10:10

It's all very well updating the website after the event but since issue these prefs have been described as being irredeemable on the prospectus and on Aviva's website. I understand very well that Aviva are looking to wriggle through the semantics loophole of the difference between redeeming and cancelling but the affect on holders is exactly the same. These holders had placed reliance on the published terms of the prefs and if one now cannot rely on this then the whole structure of Company Law in the UK is denigrated.

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Don Busby

Mar 21, 2018 at 12:45

This is similar to a posting attempted earlier this morning.

I suggest two possible courses of action for Aviva to pay-down its debts of preference shares in Aviva and General Accident. They make for a propitious solution to the furore caused by their unthinking declaration of possible redemption at par value, at short notice, which has caused such potential loss of capital and earnings plus concern, for holders of this stock.

1. Declare the intention to redeem at par, 5 years hence.

2. At yearly intervals, for the next 5 years, redeem one fifth, then one quarter, then one third, then one half, then the remainder. All such redemptions to be at prevailing market price. At the end, price should be down to par.

I do not claim to fully understand the ramifications of what I am suggesting but, as a holder of much of this stock, I would be happy to continue in this more controlled market.

Don Busby

21st March 2018

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FCA warns preference share issuers amid Aviva fallout

by Daniel Grote on Apr 19, 2018 at 08:51

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