Shares sell-off saved Equitable

By STEVE HAWKES
Updated:

 

EQUITABLE Life chairman Vanni Treves today revealed that last year's decision to slash the ailing group's stock market holdings saved the business from collapse.

Treves told policyholders at the annual general meeting in Wembley that without the switch into safer investments 'we would now be bust and in the hands of administrators'.

About 25% of Equitable's £13bn with-profits fund was invested in listed equities at the start of last year, but this was cut to under 5% by December with the bulk now in fixed-income securities and bonds.

Treves said most of Equitable's stock sale came when the FTSE 100 index was still at 4800, well above its low last year of 3609.9 and allowing the fund to produce a return of 4.8% during the year.

'In making this vitally important decision,' Treves said, 'your board recognised it was, indeed, a huge decision It was quite simply a bet the bank - or in our case bet the mutual - decision of gigantic importance.

'But please be in no doubt, had we not taken action to reduce the effects of the significant market turbulence, the effects could have been much worse for the business. The outlook for policyholders would have been unthinkably grim. If we had not moved out of the equities when we did, I can tell members that we would now be bust and in the hands of administrators.'

Treves' comments came as he sought to reassure delegates he was cautiously optimistic about the mutual's future, but failed to deflect criticism of the Equitable management's remuneration.

After swingeing cuts to their savings and pension plans, and days after it emerged the mutual could face a mis-selling compensation bill of £75m, savers were being asked to approve bumper pay packages for part-time chairman Treves and chief executive Charles Thomson.

Treves took home £125,000 last year, up from £60,000 worth of fees in the previous 12 months, while Thomson pocketed £679,288 in pay and bonuses after a 35% rise in his annual salary.

One angry policyholder accused the board of having their 'snouts in the trough', arguing they were profligate to give former chief finance and investment officer Charles Bellringer a £195,000 pay-off last November for just six months as a director.

Paul Braithwaite, head of the Equitable Members Action Group (EMAG), described the mutual's pay record as 'obscene'.

How the troubles began

EQUITABLE'S crisis dates back to the 1970s and 1980s when it sold 90,000 policies with a guaranteed annuity rate (GAR). As interest rates began to fall in the 1990s, Equitable cut bonuses, prompting a group of GAR policyholders to take it to court.

The High Court backed the society in 1999 but the Court of Appeal and the House of Lords subsequently found in favour of the policyholders, leaving Equitable with a £1.1bn liability. It struck a deal whereby policyholders gave up their rights to guaranteed payments in exchange for a one-off increase in the value of their funds. But it has since faced a constant battle to shore up its finances.

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