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MPs and fund groups pile pressure on Aviva over prefs

Treasury Committee chair Nicky Morgan writes to FCA while fund groups lobby Aviva against threat to cancel preference shares.

 
MPs and fund groups pile pressure on Aviva over prefs
 

MPs and fund groups have piled more pressure on Aviva over its threat to cancel its preference shares.

Nicky Morgan (pictured), chair of the Treasury Committee, has written to the Financial Conduct Authority (FCA) over Aviva's move, saying the committee had received 'a large volume of correspondence' over the insurer's plans.

She questioned whether the FCA believed Aviva's marketing of the preference shares, which were termed 'irredeemable', was misleading, also questioning the regular over Aviva's communication of its plans.

'What is the FCA's role in resolving any dispute regarding whether the preference shares are in fact redeemable?' she asked.

'What options are available to the FCA to address concerns about the functioning of the wider market for preference shares, including concerns about their redeemability?'

Aviva is also coming under pressure from its peers, after a delegation of fund groups met with chairman Adrian Montague to lobby the insurer to back down.

Fund groups attending the meeting, reported in The Times, included M&G, Invesco, GAM, BlackRock, Legal & General and Eden Tree.

Fund managers at all six fund groups have holdings in the preference shares, according to Thomson Reuters data. But the status of M&G, Invesco, BlackRock and Legal & General as major holders of the ordinary shares potentially carries more clout.

BlackRock is listed by Thomson Reuters as the single largest shareholder, with 5% of the share capital, and the four fund groups between them control 13% of the shares.

Should Aviva proceed with its plans to cancel the preference shares, the move would be put to a vote of both ordinary and preference shareholders.

In the case of two General Accident preference shares affected, Aviva could wave through the plans as it is the sole ordinary shareholder of its legacy car insurance business.

But for the two types of Aviva preference shares, holders of Aviva's ordinary shares will effectively seal the fate of the preference shares. Preference shares will carry four votes, while ordinary shares will carry one, but there are more than four billion ordinary shares in issue, versus only 200 million Aviva preference shares.

Aviva's signal it could cancel the shares, which had traded at high premiums, at par, announced alongside full-year results earlier this month, sent their values tumbling and had a knock-on impact on the wider preference shares market.

The insurer has insisted the shares' 'irredeemable' status does not prevent it from cancelling them in a 'reduction of capital' which it said was a 'different mechanism under law'.

It has said cancelling the shares was 'one of a number of options' being considered and that 'no decision had yet been taken'.

James Foster, manager of the Artemis Startegic Bond and Monthly Distribution funds, also weighed in with criticism of Aviva, although he does not own the preference shares.

He said Aviva's claim that it could cancel the shares through a reduction of capital was 'slightly misleading'.

'Aviva gets to refinance a high-yielding bond with a low-yielding bond (or cash), but in my view, it does so purely via a legal loophole,' he said.

'In effect, equity holders will gain at the expense of bondholders.'

19 comments so far. Why not have your say?

Peter Clery

Mar 21, 2018 at 15:28

Thomas Stoddard CFO should go. I guess he was the arch villain in this farce.

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Richard via mobile

Mar 21, 2018 at 16:55

Does Aviva really want to destroy yet more public trust in corporate Britain? Time to reconsider!

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T Wells

Mar 21, 2018 at 16:55

The preference shareholders have been laughing all the way to to the bank for years at the expense of the ordinary shareholders. Now the boots potentially on the other foot they're squealing like pigs. No sympathy!

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Peter Clery

Mar 21, 2018 at 17:07

Rubbish. The prefs. were subscribed to when the company's needed cash at a time of high interest rates Successive buyers bought them at a price which reflected their " irredeemable" status or so we were led to believe. You might as well say that a borrower / lender can renege on any deal when it no longer suits..

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Dennis Russell

Mar 21, 2018 at 17:20

The originaal issue of Aviva preference shares in 1992 was to Institutional holders, some of whom were glad to find retail buyers when times were hard for them. Locking up £1.00 in 1992 came with a high penalty due to 26 subsequent years of inflation, hence the high coupon at the time, and the premium to buy now. T.Wells should be more polite!

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Rick Dale

Mar 21, 2018 at 17:42

@T. Wells: the yield at par of the prefs is 8.5% on average. The yield at par of the ordinary shares is around 109%, so the rather small percentage of the dividend payout accounted for by the prefs is not exactly burdensome. Moreover, it is eroded by inflation: it becomes progressively less burdensome.

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gadgetmind2

Mar 21, 2018 at 17:48

Pensioners who bought annuities when rates where 8% + are also "laughing all the way to the bank" so should Aviva just stop paying out on annuities if their clever lawyers can find some way for them to (just about) legally do so? No-one will do business with Aviva in future without a huge risk premium if they go ahead with this.

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paul crocker

Mar 21, 2018 at 17:58

ROLLO & WELLS are u ordinary 25p shareholders like myself would like Aviva to Redeem/Cancel your shs. @ 25p.? What do u say to the pensioner that paid

170p!!!!!!! just recently now to have them stolen from him@100p & has all his .money in prefs.? Would they redeem/cancel if price was 50p

I hold many prefs. & ordinary shs.it is not all about money it is knowing right from

wrong & not being selfish

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Michael Loveridge

Mar 21, 2018 at 18:09

"... there are more than four billion ordinary shares in issue, versus only 200 million Aviva preference shares."

That's quite true, but what seems to have been overlooked is that at the time the prefs were issued by Commercial Union back in 1992 there were only around 440m ordinary shares. This meant that the additional votes gave the prefs 400m votes, so that they could easily defeat any resolution that would prejudice their rights.

But the absorption of Commercial Union into Aviva and the subsequent expansion and issue of billions of additional ordinary shares meant that the prefs were gradually diluted. This has now reached the point where the protection that was so carefully written into the original issue has been completely destroyed.

The pref holders should, under the terms of both the issue and company law, have been given both notice of resolutions to issue additional ords and the right to vote for or against such a resolution, as it clearly affected their rights.

The pref holders could then have agreed to the issue of more ords in return for additional `veto votes', but to the best of my knowledge they weren't given such notice. A large question mark therefore hangs over Aviva's corporate conduct and the legality of those additional dilutive share issues.

In practice, I'm quite sure that Aviva are by now wishing to God they'd never mentioned it. I would confidently predict that the legalities will be kicked into the long grass, and that as a result of the sh*tstorm that's been created they will retreat, licking their wounds, and offer the pref holders somewhere near the original market price.

I've therefore bought the prefs quite heavily, and I think it could be the opportunity of a lifetime.

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Paul Nash 2

Mar 21, 2018 at 19:48

I will not buy insurance or any other financial products from Aviva until I see director(s) head(s) roll. In my opinion they have no credibility and are completely untrustworthy. If they are prepared to do this to their own members, what will they be prepared to do to their customers?

I do not hold Aviva preference shares or ordinary shares except through managed funds, but the behaviour of directors is unforgivable.

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Peter Clery

Mar 21, 2018 at 19:50

Start with Thomas Stoddard. He was the "brains" behind this stupidity as far as I can make out.

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paul crocker

Mar 21, 2018 at 20:47

michael l. hope u do well bet WELLS hopes you lose see my reply!!!! to him

selfish people only think of themselves i am lucky the loss will not harm me much

but it is about fairness this is not fair like all comments i will never buy anymore

products

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andrew moffat

Mar 22, 2018 at 00:30

I only own the Ordinary shares but I am horrified at what Aviva has suggested.

We have now reached the stage where merely apologising to the market and to shareholders and withdrawing the proposal will be insufficient.

Heads must roll. No 1 is Thomas Stoddard - unless it can be shown that he opposed the move. No 2 is the CEO, Mark Wilson - for the buck stops with him. No 3 is the Chairman - one of the 'great and the good' - for failing to nip this in the bud.

We are discussing, here, a breach of trust with shareholdes, gross immorality - doubtless cooked up by ever so clever lawyers - and a disgraceful absence of moral compass.

Note, the AGM of Aviva is on 10th May. These points and more should be raised in the strongest of terms with the Board at that event. Shareholders should apply to their brokers/providers, etc, for attendance cards.

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paul crocker

Mar 22, 2018 at 07:45

Agree with all comments other than rollo &wells this is not all about money this is

about trust honesty moral from a !!!!!!!!!!!!!!!!! FTSE 100 insurance co.!!!!!!!!!!!!!!!!!

if they cannot be trusted they may as well shut up shop i hold ord & prefs if i was just ord holder i would vote against this spiteful financial engineering i did not want the board to waste my money & time bringing the city into more disrepute

doing the devils work for corbyn& mcdonnell

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anit-spiv

Mar 22, 2018 at 13:19

Interesting comment above. Aviva preference share holder were given in the Prospectus a sufficient number of votes to provide them with a large blocking minority. The steady dilution of created by increases in share capital by AVIVA mostly recently through the acquisition of Friends life has now given the ords the sufficient votes to push through an amendment requiring a 75% majority of both classes if the equity holders are willing to damage the reputation of their company and become involved in the unethical oppression of a minority equity class. It is patently clear that the protections and voting rights given in the prospectus were supposed to protect against this.

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Peter Clery

Mar 22, 2018 at 13:53

Explain this to the AVIVA Directors !

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pikestaff

Mar 22, 2018 at 15:17

I have in the past held these shares as a trustee, and it would never have occurred to me that the directors would seek to do anything so dishonest.

Luckily the trust ended last year, but my elderly mother still holds these prefs, on my advice, as well as others whose value has been hit in response to Aviva's proposal. She stands to lose a non-trivial amount.

I am appalled. Even if it the proposal is withdrawn the damage to confidence is done and the market won't fully recover.

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Dennis Russell

Mar 22, 2018 at 15:43

I have sold AV. and bought LGEN

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paul crocker

Mar 22, 2018 at 17:04

Dennis i have sold 6k av. can hardly bare to mention name still hold irr!

they were in my keep forever list agree with u all disgusting.Good article if u can

call it that in The Times. I have a feeling it may not end too badly

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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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