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ALEX BRUMMER: City regulators should block LV sale


The dismantling of Britain’s mutual sector has been one of the great acts of corporate vandalism of our time. 

The ‘greed is good’ ownership, which saw building societies and insurers rushing the fences to change their status, destroyed value and betrayed Victorian principles of thrift. 

Given this disturbing history of the noughties, which saw the security of savings compromised, one might wonder why any well-run mutual might want to change its status. That is precisely what the leadership of the venerable Liverpool Victoria, trendily renamed LV, is proposing to do by selling itself to private equity outfit Bain Capital. 

Life imitating Hollywood: ‘Greed is Good’ was Gordon Gekko’s catchphrase in the movie Wall Street (pictured)

In so doing, LV’s chairman Alan Cook and chief executive Mark Hartigan are flying in the face of the tradition of reciprocal help in the mutual sector. 

The big surviving mutual lenders, such as the Nationwide and the Yorkshire, have bulked up over the years by offering a helping hand to smaller societies and continue to provide enhanced benefits to members through better savings rates and socially friendly mortgage deals. 

Bain Capital may be the most benevolent private equity firm in the world and willing to invest in the LV brand and colleagues. The idea that it will ever place the interests of LV’s 1.16m policyholders above those of its private equity partners, debt providers and investors is cloud cuckoo land. 

Steve Schwarzman of Blackstone, just retired ‘barbarians’ Henry Kravis and George Roberts of KKR and Bridgepoint founder William Jackson did not become super-rich by their benevolence. 

If LV needed to bolster its capital and marketing to make itself more sustainable, the natural partner was mutual Royal London. It offered merger terms which would protect members’ interest if not that of executives. One might have expected Cook, there to ensure fair play for policyholders, to have trimmed Hartigan’s ambition and taken the safest route. Cook doesn’t have a record of supporting the grassroots against the powerful. 

He was managing director of the Post Office when it began its unconscionable prosecutions of sub-postmasters for alleged theft. It turns out to have been one of the most flagrant miscarriages of justice of our time. 

As we report today, Cook and Hartigan have a cunning plan to make sure the Bain Capital deal will be approved by LV members. 

Under Articles of Association, some 75 per cent, of at least 50 per cent of voting policyholders, must approve the transfer. Getting 50 per cent of individuals, many of whom may find the details of the transaction complex, to vote on anything is difficult enough. 

To ensure the executive gets their way they will seek the permission of voting members to change the rules before going to court to lower the hurdles. This is a little like Donald Trump hoping the courts would hand him the 2020 election. 

The 50 per cent rule is there for a purpose. It is a protection against unwanted parties gaining control of a mutual to the potential detriment of policymakers. Financier Andrew Regan tried and failed with such a tactic when he sought to gain control of the Co-op in 1997. 

City regulators at the Financial Conduct Authority and the Bank of England’s prudential arm should step in and block the Bain Capital sale. They need to halt a steamroller of rule changing and easy money in its tracks.

Debt jeopardy

If LV members want an insight into what private equity stewardship can mean, they should dip into the Competition & Markets Authority interim report into children’s care. The study warns that increasing numbers of private-equity owned firms could leave the homes ‘vulnerable to financial stress’ and ‘risk huge disruption to children in their care’. 

Control by private equity is rarely benign. High levels of debt force rushed and often harmful decisions. 

Promises made in the heat of battle can quickly turn to dust as the providers of loan finance tighten the noose. 

The debt-fuelled takeover of Asda by Mohsin and Zuber Issa was an inspiring tale of entrepreneurship. 

But the deal loaded the grocer with billions of pounds of loans. The debt mountain was to be whittled down by the £750m sale of the supermarket petrol stations. 

The very same Issa brothers’ forecourts company EG Group was to have been the buyer. But it had difficulty raising the finance leading to a debt downgrade. Not a great template for private equity ghouls. 

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