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Gifted
Joined: 23 Feb 2003
Posts: 535
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 Posted: Sat Jun 13, 2009 4:09 pm Post subject: |
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It may be worth checking out the US idea of mutual holding companies, which bear some resemblance to what is being proposed at the West Brom.
http://en.wikipedia.org/wiki/Demutualization
It seems they started out in the US building society (savings and loan) sector, which suffered a massive crash in the late 1980s (sound familiar?)
http://www.teachmefinance.com/Financial_Terms/mutual_holding_company.html
The MHC idea spread to mutualk lifecos and inspired major opposition among policyholders in the US who launched campaigns to stop their creation over the past 10 years .In effect they simply turn over large slices of the members equity to others with no compensation.MHCs are banned in Canada and in most American states..
Here's a Wall St Journal article which explains the issues quite well.Note the conflict of interest between the members and the other equity holders, and also the stock options opportunites for managements.
http://cyber.law.harvard.edu/rfi/press/mutual.html |
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Nogbad
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Joined: 27 Dec 2004
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Location: Liverpool
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| Posted: Sat Jun 13, 2009 5:53 pm Post subject: |
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Unbelievable,
The financial sector never ceases to amaze me. What kind of scheme is this that has been devised. It seems there is no end to the ways that can be dreamt up to resolve an issue.
The question has to be asked why some if not all of the other Building societies recently taken over didnt implement the same solution as West Brom?
And more importantly who are the real winners from this deal? |
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Sandman
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Trustee
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Joined: 31 Dec 2000
Posts: 1311
Location: London, UK
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| Posted: Sun Jun 14, 2009 10:02 am Post subject: |
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I think it safe to assume the Treasury is exerting considerable pressure on the FSA and mutuals to get their house in order 'by any means' so they can bottom the financial crisis.
Expect to see more dodgy deals. |
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Reporter
Gifted
Joined: 23 Feb 2003
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| Posted: Sun Jun 14, 2009 3:48 pm Post subject: |
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Robert Peston explains it all very well.
http://www.bbc.co.uk/blogs/thereporters/robertpeston/2009/06/west_brom_threequarters_mutual.html
| Quote: | In other words, West Brom has semi-demutualised without all the fuss of going through a stock market listing or obtaining the approval of its members....it will be fascinating to see if other capital-constrained societies take the opportunity to strengthen themselves by swapping debt for what looks and quacks quite a lot like ordinary shares.
In fact, the FSA has said this morning that societies may be able strengthen themselves by simply selling these almost-shares to new investors - even, just possibly, retail investors, including building-society members. |
So instead of them paying you compensation via shares or a windfall on demutualisation, you will be required to pay up for something which, under the mutual concept, you already own. |
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Sandman
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Joined: 06 Oct 2003
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| Posted: Sun Jun 14, 2009 4:37 pm Post subject: |
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| So what happened to the 160 years of reserves which was supposed to be handed from generation to generation? |
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planteria
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Joined: 21 Apr 2000
Posts: 3369
Location: going down the wednesbury road
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| Posted: Sun Jun 14, 2009 6:27 pm Post subject: |
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"So instead of them paying you compensation via shares or a windfall on demutualisation, you will be required to pay up for something which, under the mutual concept, you already own."
farcical isnt it  |
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LinoSack
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Joined: 20 Apr 2000
Posts: 4514
Location: The Virtual World
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| Posted: Sun Jun 14, 2009 8:48 pm Post subject: |
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| It is remarkable what they will do to keep their independence and with it their salaries. |
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planteria
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Location: going down the wednesbury road
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| Posted: Sun Jun 14, 2009 11:31 pm Post subject: |
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"The new instrument will be used by several societies now undergoing FSA stress tests."
can anyone see windfalls in the future, once these problems are behind us?, as i can't see any other reason to retaining Building Society membership |
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richard@Rpoints
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| Posted: Mon Jun 15, 2009 9:25 am Post subject: |
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RP describes West Brom as now a "three quarters mutual". I assume he's using the figure of 25% of profits that have to be paid to PPDS holders. (He can't be using voting rights, as it seems to be an unanswered question as to what % of votes the PPDS holders can potentially represent  ) But that's not right, is it?
As I recall from "pro-mutuality" arguments, banks are thought to have to pay out around 33% of their profits in dividends. West Brom is now paying out 25% of its profits to PPDS holders (75% of what banks pay out). So it's only a "one quarter mutual" by that measure
Someone please correct me if I'm wrong!
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baggies
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| Posted: Mon Jun 15, 2009 10:33 am Post subject: |
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A couple of points:
I see from note 4 to the 2008 detailed stats that the sub-debt holders (who will now be the PPDS holders) previously earned approx £12m from these holdings - thus WBBS profits (I assume after tax?) would need to be £48m plus for them to be better off holding the PPDS.
Also I believe i read somewhere that the PPDS holders each get 1 vote each irrespective of the value of their holdings - just like the rest of us members.
Seems to me that we members have got a good deal out of this not a bad one. |
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mwba16573
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| Posted: Mon Jun 15, 2009 1:28 pm Post subject: |
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| Yes beats me why anyone would want to invest money in the WBBS given these terms.......lets hope the PPDS holders are not our banks making another poor decision ! |
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MarkyMarkD
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| Posted: Sun Jun 21, 2009 5:45 pm Post subject: |
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| richard@Rpoints wrote: | Mmmm, well the Telegraph says:
| Quote: | In West Brom's example, which is the test case for the sector, PPDS holders will be awarded 25pc of all future profits. A proportion of that, at the management's discretion, will be paid out annually and the rest retained and marked as "PPDS reserves". Should the society make a loss, 25pc of that loss will be taken from the PPDS reserves and the rest from the members reserves. Should the loss be more than is in the reserves, it starts to come out of the principal PPDS capital – £182.5m in West Brom's case.
In the event that the society is sold, the PPDS holders receive all retained "PPDS reserves". |
If that's all the PPDS holders get, (and no ongoing share of profits), surely the West Brom should now be looking to sell itself ASAP. Then it no longer has to give up 25% of its profits each year. The members get a windfal and £182.5m of debt has been wiped out. Brilliant, Bob!  (I'm sure I must be missing something though) |
I haven't read all the stuff, but I would expect them to get the nominal value of their shares (the original debt amount) PLUS the retained PPDS reserves. Hence, if the PPDSs were redeemed straight away, there would not be the windfall gain to West Brom that you suggest.
I can't believe for a moment that the PPDS holders would have signed up to something which enabled them to be wiped out at no cost (and therefore, no benefit to them). |
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MarkyMarkD
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| Posted: Sun Jun 21, 2009 5:47 pm Post subject: |
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| mwba16573 wrote: | | Yes beats me why anyone would want to invest money in the WBBS given these terms.......lets hope the PPDS holders are not our banks making another poor decision ! |
Presumably they did not have a choice, other than to accept that WBBS would have been nationalised if this had not happened, and they might then likely have ended up with nothing. Rather a "gun to the head" decision in that case.
This is what makes me wonder whether other institutions will, in fact, do the same thing - if they are not about to go under, they won't be able to convince their sub debt holders to accept the change.
Or does anyone think otherwise? |
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richard@Rpoints
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| Posted: Mon Jun 22, 2009 8:39 am Post subject: |
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| MarkyMarkD wrote: |
I can't believe for a moment that the PPDS holders would have signed up to something which enabled them to be wiped out at no cost (and therefore, no benefit to them). |
Well, as you so rightly pointed out....
| Quote: | | Presumably they did not have a choice, other than to accept that WBBS would have been nationalised if this had not happened, and they might then likely have ended up with nothing. |
So perhaps a member could organise a resolution for next year proposing exactly that? 
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