With-profits savers fear the worst

By RICHARD DYSON
Updated: 19:00 EST, 1 August 2004

Policyholders with Abbey-owned life offices Scottish Mutual, Scottish Provident and Abbey National Life face more uncertainty after last week's announcement that Abbey will be sold to Spanish group Banco Santander.

The three insurers have 850,000 withprofits savers between them, most of whom are stuck with plans that pay no bonuses and have dire prospects - but have funds totalling £28 billion.

Hefty penalties make it difficult for investors to get out. Scottish Mutual with-profits bond holders, for example, will lose almost a quarter of their policy's value if they cash in.

Madrid-based Santander, headed by Don Emilio Botin, said last week that it was 'not committed' to keeping the businesses. Fears that the insurance division will prove a millstone are believed to have delayed Santander's bid. Botin's comment was a step further than Abbey was prepared to go before the bid, when it said only that there were no plans to sell the insurers.

If the businesses are put up for sale, they could be snapped up by Resolution Life, the new company on the prowl for closed with-profits business. On Friday it confirmed the purchase of Royal & SunAlliance's £20 billion fund. It is not yet clear how Resolution will manage any funds it buys and that uncertainty is troubling RSA's one million policyholders.

'The with-profits policyholders in the Abbey group are in a poor position as it is,' says investment analyst Patrick Connolly of broker John Scott & Partners in Marlow, Buckinghamshire. 'Abbey has pretty much done as little as it can to support the policyholders in the past.'

Abbey's takeover will have no effect on the bank's savers and mortgage borrowers. But the 1.7 million small shareholders, who will be offered a mix of Santander shares and cash worth about £6 for every Abbey share, must decide whether to back the bid. The cash element of the payment - 31p per Abbey share - is taxable.

Paperwork will be mailed out in September - If the deal goes through, they must decide whether to keep the new shares. Abbey has said it will provide a facility to sell.

Many small shareholders, most of whom received their shares as windfalls when Abbey demutualised as a building society in December 1989, will regret Abbey's loss of independence.

They will also be dismayed that at £6, each share is worth well under half its peak price of £14 in 1999. At Friday's close, the shares were 567p.