Trick or treat?

By TONY HAZELL FOR THE DAILY MAIL
Updated:

 

Thousands of anxious shareholders are calling Halifax offices following its announcement last week of plans to give away £1.5 billion to its shareholders.

The Halifax intends to give its 3.6 million shareholders - one in 12 adults - a one-off windfall payment and at the same time restructure the company. But this will lead to people having fewer shares.

Halifax chief executive James Crosby promises it will make the bank stronger.

'It's cash today with the prospect of a better return in the future,' he says. But many private shareholders remain unconvinced.

Jean and Albert Austin from North London, are so angry about Halifax's plans that they are considering closing their savings accounts. Both are Halifax shareholders and use the dividends to top up their income. Albert, 72, has 400 shares; Jean, 68, has 240.

Jean says: 'At first, when we heard we were getting 62p per share, I thought we could go on holiday with the proceeds. I was receiving £162 and my husband about £300.

'But then I read that I would be getting 37 shares for every 40 I have now, so the value of my shareholding will go down.

'We have done the sums and I believe I will be £30 out of pocket as a result of these changes.'

Halifax chief executive James Crosby responds: 'Nobody will be out of pocket. Nobody will be worse off. Everybody's stake in the Halifax remains the same, both before and after the proposal is implemented. 'Rather than waste our capital on inappropriate or expensive acquisitions, we are giving some of it back to our shareholders. It's the bird-in-the-hand principle at work.

These are the key questions every Halifax shareholder will be asking.

What is Halifax proposing?
It wants to change the structure of the company by having fewer shares and giving some money back to its shareholders.

Why is it doing this?
Halifax has been sitting on a large pool of money since it became a bank in June 1997. This is a way of distributing some of that money among its shareholders.

So What's happening?
It will issue 37 new shares for every 40 old shares. The average shareholder with 350 Halifax shares will receive 323 new shares.Those who received the minimum windfall of 200 shares will receive 185 new shares. At the same time, a special cash payment will be made.

So I'll have fewer shares?
Yes. But Halifax points out that, as everyone else will also have fewer, you will still own the same proportion of the company.

Will this affect the share price?
Halifax does not expect to see much change. But it will depend on how City experts view the restructuring.

Fewer shares at the same price - won't I be worse off?
No. You're forgetting the cash payout.

How much cash will I get?
You will get 62p for each ordinary share. Someone who received the minimum windfall of 200 shares will receive £124. The average shareholder with 350 shares will receive £217. Payments should be made in early June.

Will I have to pay tax?
Probably not. The money is a return of capital, not a dividend, so it should be treated as a capital gain. You are allowed to make £6,800 capital gains before paying tax, so most people should avoid a tax bill. There is one proviso, however - Halifax must clear the proposal through the High Court and with the Inland Revenue.

What if my shares are held in a Pep?
The Halifax will write to all holders of its single company Pep following the AGM. It will provide a choice of using the money to buy Halifax shares, or taking the cash. If you hold your shares with another Pep manager it is likely the payment will be treated in the same way as dividends.

So if you normally have income paid to you it will be passed on. But if income is normally used to buy more shares, then your windfall will be used to buy shares. Contact your Pep manager if you want the cash instead.

But why go to all this trouble?
First, it gives those who want it the chance to take the cash. Second, before the buy-back, there will be 2.4 billion Halifax shares. After it there will be 2.2 billion. With fewer shares in issue, the share price should be stronger in the long term.

Who qualifies for the windfall?
Anyone who holds Halifax shares on the last trading day before the corporate restructuring. This should be on May 28.

Will I have a say in the changes?
Yes. Immediately after the annual general meeting on April 27 at the International Conference Centre in Harrogate, there will be a shareholders' meeting when you can vote. You will receive voting papers in late March with normal AGM information. They must be returned by April 25.

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