Morning:
8°c
Would you buy a used life policy, or even a new one, from this lot? The mugs at the top of our life assurance companies appear to have hardly a clue what they're doing.
Pearl, the business run by Hugh Osmond, seemed to have bought Resolution last November for £5 billion in cash. It turns out not to have done, or not quite yet, and even if all goes well, the vendors are going to have to wait at least until the middle of next month for their money.
There's no apology, far less any suggestion of compensation for the lost interest on about £3.5 billion, and there's an outside chance that Pearl will wriggle out of the whole deal if it discovers something particularly nasty in the Resolution woodshed.
Pearl is blaming the other side for not telling the whole truth, and what looked like a done deal is suddenly not, which is why Resolution shares are no longer as good as cash next month. At 680p, they are far below the 720p a share which Resolution's board accepted four months ago. Oh, and the company's driving force, Clive Cowdery, sold his 3% stake for 710p a share, pocketing £145 million, in December. If the deal falls through, there will be a terrible stink.
Next look at Friends Provident, friends-free after being jilted by Resolution last year. It fired its chief executive, launched a strategic review, and just as its conclusions-were revealed, appointed a new chief executive, Trevor Matthews. Isn't this the wrong way round? Without the possibility of a takeover from JC Flowers, Friends' shares would be a lot lower.
It's hardly surprising that Matthews preferred even the cartbeforethe-horse job at Friends to staying at accident-prone Standard Life. Its own, ill-starred bid for Resolution blew away any suggestion it had learned from past mistakes. The damage the bid did to the share price continues, and now shareholders have losses on their holdings to add to the miserable returns from their life policies.
Then there is the Prudential. Here's Tim Young at Collins Stewart: "We have argued endlessly that Prudential UK is a basket case and that Nick Prettejohn is precisely the wrong person to undertake its turnaround."
To suggestions that Mark Wood has been approached by a potential break-up bidder, Young writes: "Given the hostility between Wood and CEO Mark Tucker, this feels an improbable scenario." Last year Aviva, the sector's largest company, botched an attempt to take over the Pru, and then had the bright idea of appointing Clare Spottiswoode, scourge of British Gas, as "consumer champion". She's taken the job seriously, and a division of the company's surplus assets between shareholders and policyholders seems as far away as ever.
The underlying problem with life offices is that there's a hole in their bucket: the new business figures-always look splendid, but disguise the cancellations dribbling out of the bottom, enriching the salesmen and impoverishing the policyholders. Until companies start producing realistic accounts, instead of the panglossian " embedded value" figures, we'll have no confidence in the numbers.
Cowdery and Osmond have both made fortunes in this industry, but the rest of us can only look on in disbelief at so many stupid mistakes.
