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Devil's Advocate

Roger Elwell - Yes Please

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Time For Shareholders To Assert Themselves

04 November 2008  |  2257 views  |  0

The opportunity exists in the next 3 months for a significant shift in power in the corporate world.  Shareholders large and small have a unique opportunity to exercise a degree of control over the companies they - not the management - own, especially with regard to four of the UK's largest banks.  I think they should collectively send a series of messages to the management of all four that they will no longer lie down and play doggo, whilst the management (and recently the UK Government) ride roughshod over them.

Barclays management has negotiated a series of capital-raising deals that will seriously disadvantage the existing shareholders, short- and long-term.  RBS, HBOS and Lloyds have negotiated deals with the UK Government that are not sufficiently in the interests of shareholders - specifically the selling of preference shares at ridiculously high coupons and with restrictions on dividends that not only destroy shareholder income but will also depress capital value for far longer than would otherwise be the case.

In the meantime, management and staff will continue to enjoy bonuses and salary increases that mean they don't share in the suffering (which was actually caused by them in the first instance) and, in the case of the latter three banks, the Government will receive sufficient return on the preference shares to provide a minimum 3% return on the investment as a whole (assuming they have to put up for all the ordinary shares too).

Thankfully, all of these deals are subject to shareholder sanction before they can go ahead.  The choice before shareholders is to either roll over and take the medicine, which is far too strong and blatantly not fair at all, or reject the resolutions and tell the management to think again.  Maybe, finally, the large shareholding institutions (who by the way act for you and me in their capacity of managing our pension funds) and the small holder will take route B and send a clear message that enough is enough.

RBS, HBOS and Lloyds shareholders should perhaps reject the preference shares resolutions that will be put before them, and tell the management that years of no dividend income is not acceptable, and neither are vague promises to 'repay early'.  It might be better not to take the deal at all, and get them to renegotiate.  Lloyds shareholders may well also reject the HBOS takeover in its current form.

Of course, there would be risks in all of this, but at the end of the day, something would be worked out, and perhaps in an environment where everyone doing the negotiating realised that the usual whipping boys (the shareholders) simply had to be considered far more than has been in the past.

So, come on large institutions.  Flex your muscles and help all those retired people who invested in the banks for income get what they need and are going to otherwise be cruelly denied.  Do your bit and make the management see that they have to act in shareholders' interests, for once.  It just might make things better in the future, as well.

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member since 2008
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Consulting to the financial services industry with a specific expertise in the cards business - issuing and acquiring.

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